<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KFC National Purchasing Cooperative, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transactions
applies:
Membership Common Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$4,236,000 (value of net assets to be spun-off)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$4,236,000
- --------------------------------------------------------------------------------
(5) Total fee paid:
$847.20
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
REORGANIZATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of KFC National Purchasing Cooperative, Inc.
(the "KFC Coop") is seeking your approval to reorganize the KFC Coop. For the
past six months, we have met with representatives of Tricon Global Restaurants
and franchisee owners and operators of KFC, Pizza Hut, and Taco Bell
restaurants to discuss the formation of a new purchasing cooperative focusing
on the purchase of the food, packaging, supplies, equipment, and related
services used by operators. We hope to achieve reduced store delivered costs of
goods and equipment, as well as other important goals discussed more fully in
the attached Proxy Statement, by joining the newly organized Unified
FoodService Purchasing Coop, LLC (the"Unified Coop"). If our members approve of
this corporate reorganization, the Unified Coop will be set up as a new limited
liability company, the initial members of which will be the KFC Coop and the
newly organized Taco Bell Coop and Pizza Hut Coop. The members of each of these
new cooperatives will be the operators of each respective Tricon restaurant
concept, including Tricon.
If our members approve this corporate reorganization, the KFC Coop
will transfer certain assets, liabilities and members' equity that relate
specifically to its Taco Bell operations to the Taco Bell Coop. Simultaneously,
through consummation of a tender offer, the KFC Coop will effect a division of
its Taco Bell business so that members of the KFC Coop who are Taco Bell
operators will become the members of the Taco Bell Coop and will no longer be
members of the KFC Coop. The KFC Coop will also transfer certain assets and
liabilities to the Unified Coop, in exchange for its membership interest
therein. To implement these transactions, the KFC Coop Board seeks approval for
(i) its officers to execute the Operating Agreement for the Unified Coop, the
Agreement and Plan of Corporate Separation, the Asset Contribution and
Liability Assumption Agreement, and the Purchasing Program Management
Agreement, as more fully described in the attached Proxy Statement; (ii) the
amendment of the KFC Coop's Bylaws to conform the patronage dividend program to
the operations of the Unified Coop and to makes other changes which give effect
to the Taco Bell Coop split-off; and (iii) the authorization of such other
action as may be necessary to carry out the purposes of the proposed corporate
reorganization.
Upon completion of the corporate reorganization, the KFC Coop will
continue to operate and will concentrate on its KFC purchasing cooperative
business. Although this business will be out-sourced and administered by the
Unified Coop, the purchasing program will be subject to significant control,
advice and counsel of the KFC Coop. The KFC Coop Board will continue to
exercise policy-making decisions and administer the Patronage Dividend Program
in accordance with past practices.
Your vote is very important. You can vote by attending the Special
Meeting or by completing and returning the enclosed proxy card. The attached
Proxy Statement provides you with detailed information about the proposed
corporate reorganization. We encourage you to read this document.
We strongly support this corporate reorganization and enthusiastically
recommend that you vote in favor of the corporate reorganization
Thomas D. Henrion David G. Neal
President, KFC Coop Chairman, KFC Coop
<PAGE> 3
KFC NATIONAL PURCHASING COOPERATIVE, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
January 28, 1999
To the Shareholders of KFC National Purchasing Cooperative, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of KFC
National Purchasing Cooperative, Inc. (the "KFC Coop") will be held on February
26, 1999, 10:00 a.m. local time, at the corporate headquarters of the KFC Coop
at 950 Breckinridge Lane, Louisville, Kentucky 40232, for the purpose of
considering and voting upon the following matters, all as set forth in the
accompanying Proxy Statement:
(i) CORPORATE REORGANIZATION. A proposal to approve the Corporate
Reorganization of the KFC Coop, as approved by the KFC Coop Board.
Approval of the Corporate Reorganization involves (i) the authorization
of and execution of the Operating Agreement for the Unified Coop, the
Agreement and Plan of Corporate Separation, the Asset Contribution and
Liability Assumption Agreement, and the Purchasing Program Management
Agreement, in substantially the form attached to the Proxy Statement,
and the consummation of the transactions contemplated therein, as more
fully described in the Proxy Statement; (ii) the amendment of the KFC
Coop Bylaws to conform the patronage dividend program to the operations
of the Unified Coop and to make other changes which reflect the Taco
Bell Coop split-off; and (iii) the authorization of such other action
by the KFC Coop Board and any of its officers as may be necessary or
appropriate to carry out the objects, intents, and purposes of the
Corporate Reorganization.
(ii) OTHER BUSINESS. Such other business related to the Corporate
Reorganization as may properly come before the meeting or any
adjournment thereof. The KFC Coop Board currently knows of no other
business to be brought before the Special Meeting.
The close of business on January 27, 1999 has been fixed as the
date of record for those shareholders entitled to vote at the Special Meeting
and any adjournments or postponements thereof. Accordingly, only shareholders
of record on such date are entitled to notice of, and to vote at, the Special
Meeting and any adjournments or postponements thereof. The stock transfer books
of the KFC Coop will not be closed.
By Order of the Board of Directors
----------------------------------
William E. Allen, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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Page
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PROXY STATEMENT SUMMARY.....................................................................1
Purposes of the Special Meeting....................................................2
Recommendation of the KFC Coop Board...............................................2
Voting Rights......................................................................3
Voting Groups......................................................................3
Taco Bell Members..................................................................3
Proxies............................................................................3
No Appraisal Rights................................................................3
SELECTED FINANCIAL DATA.....................................................................3
THE SPECIAL MEETING.........................................................................4
General............................................................................4
Matters to be Considered...........................................................4
Recommendation of the KFC Coop Board...............................................4
Proxies............................................................................5
Voting Rights......................................................................5
Voting Groups......................................................................6
No Appraisal Rights................................................................6
THE CORPORATE REORGANIZATION................................................................6
Background and Reasons for the Corporate Reorganization............................6
Summary of the Corporate Reorganization...........................................10
Agreement and Plan of Corporate Separation........................................12
Parties..................................................................12
Purpose..................................................................12
The Corporate Separation.................................................12
Taco Bell Coop Member Agreements.........................................13
Representations and Warranties...........................................13
Indemnification..........................................................14
Federal Income Tax Consequences..........................................14
Additional Provisions....................................................15
Operating Agreement...............................................................15
Parties..................................................................15
Purpose..................................................................16
Operations...............................................................16
Director Liability.......................................................16
Distributions to Members.................................................16
Tax Allocations..........................................................17
Separate Capital Accounts................................................17
Additional Members.......................................................17
The Unified Coop Board of Directors......................................17
</TABLE>
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<TABLE>
<S> <C> <C>
Withdrawal...............................................................18
Indemnification..........................................................18
Asset Contribution and Liability Assumption Agreement.............................19
Parties..................................................................19
Purpose..................................................................19
KFC Coop Employees.......................................................19
Representations and Warranties...........................................20
Covenants of the KFC Coop................................................21
Indemnification..........................................................21
Federal Income Tax Consequences..........................................21
Purchasing Program Management Agreement...........................................21
Parties..................................................................21
Purpose and Term.........................................................22
Operation of the Purchasing Program......................................22
Commitment of the Concept Coops..........................................22
Indemnification..........................................................23
Representations and Warranties...........................................23
Federal Income Tax Consequences of Patronage Income......................23
The Tricon Agreements.............................................................24
Amendments to the KFC Coop's Bylaws...............................................25
Patronage Dividend Program...............................................25
Changes to Reflect Taco Bell Spinoff.....................................25
Canadian Operations...............................................................25
Canada Subsidiary........................................................25
Canada Coop..............................................................25
Scott's..................................................................26
Interests of Certain Persons in the Corporate Reorganization......................27
FAILURE OF THE CORPORATE REORGANIZATION PROPOSAL...........................................28
MANAGEMENT OF THE COOPERATIVES.............................................................28
KFC Coop..........................................................................28
Taco Bell Coop....................................................................32
Unified Coop......................................................................33
MARKET AND PRICE FOR THE KFC COOP AND TACO BELL COOP STOCK.................................33
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999................................34
DESCRIPTION OF KFC COOP CAPITAL STOCK......................................................34
Introduction......................................................................34
KFC Coop Membership Stock.........................................................35
</TABLE>
ii
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<TABLE>
<S> <C>
Issuance in Series.......................................................35
KFC Operators............................................................35
Taco Bell Operators......................................................36
Voting Rights............................................................36
Dividend Rights..........................................................36
Limitations on Ownership and Transfer; Redemption........................37
Liquidation Rights.......................................................37
General..................................................................38
KFC Coop Store Stock..............................................................38
Voting Rights............................................................38
Dividend Rights..........................................................38
Limitations on Ownership and Transfer; Redemption........................38
Liquidation Rights.......................................................39
General..................................................................39
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK................................................39
Introduction......................................................................39
Taco Bell Coop Membership Stock...................................................40
Issuance in Series.......................................................40
Taco Bell Operators......................................................40
Voting Rights............................................................40
Dividend Rights..........................................................40
Limitations on Ownership and Transfer; Redemption........................40
Liquidation Rights.......................................................41
General..................................................................41
Taco Bell Coop Store Stock........................................................41
Voting Rights............................................................41
Dividend Rights..........................................................41
Limitations on Ownership and Transfer; Redemption........................41
Distribution and Liquidation Rights......................................42
General..................................................................42
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................42
LEGAL MATTERS..............................................................................54
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING...............................................54
OTHER INFORMATION..........................................................................54
INDEPENDENT PUBLIC ACCOUNTANTS.............................................................55
WHERE YOU CAN FIND MORE INFORMATION........................................................55
</TABLE>
iii
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<TABLE>
<S> <C>
AGREEMENT AND PLAN OF CORPORATE SEPARATION..................................................APPENDIX A
OPERATING AGREEMENT FOR UNIFIED FOODSERVICE
PURCHASING COOP, LLC......................................................................APPENDIX B
ASSET CONTRIBUTION AND LIABILITY ASSUMPTION AGREEMENT.......................................APPENDIX C
PURCHASING PROGRAM MANAGEMENT AGREEMENT.....................................................APPENDIX D
SELECTED KFC COOP BYLAW AMENDMENTS..........................................................APPENDIX E
</TABLE>
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<PAGE> 8
PROXY STATEMENT SUMMARY
The Board of Directors (the "KFC Coop Board") of KFC National
Purchasing Cooperative, Inc., a Delaware corporation (d/b/a FoodService
Purchasing Cooperative, Inc.) (the "KFC Coop"), is seeking your approval to
reorganize the KFC Coop.
To seek the necessary approval, this Proxy Statement is being
furnished to stockholder members of the KFC Coop ("Members") in connection with
the solicitation of proxies from holders of record of the KFC Coop's
outstanding shares of membership common stock (the "KFC Coop Membership Stock")
as of the close of business on January 27, 1999 (the "Special Meeting Record
Date"), for use at the Special Meeting of Members (the "Special Meeting") to be
held on February 26, 1999, at 10:00 a.m. (Eastern Standard Time) at the KFC
Coop's headquarters at 950 Breckenridge Lane, Louisville, Kentucky 40232 and at
any adjournment or postponement thereof. This Proxy Statement is first being
mailed to the Members on or about January 28, 1999. The KFC Coop's telephone
number is (502) 896-5900.
For the past six months, representatives of the KFC Coop have met with
representatives of Tricon Global Restaurants, Inc. (together with its
affiliates, "Tricon") and franchisee owners and operators (together with Tricon
operated stores, "Operators") of KFC, Pizza Hut, and Taco Bell retail outlets
("Retail Outlets") to discuss the formation of a new purchasing cooperative
focusing on the purchase of the food, packaging, supplies, equipment, and
related services ("Goods and Equipment") used by Operators. To reduce the store
delivered costs of Goods and Equipment, as well as to achieve other important
goals discussed more fully below, the KFC Coop Board has adopted this proposal
to create and join the newly organized Unified FoodService Purchasing Coop, LLC,
a Kentucky limited liability company (the "Unified Coop"). The other members of
the Unified Coop will be Taco Bell National Purchasing Coop, Inc. (the "Taco
Bell Coop") and Pizza Hut National Purchasing Coop, Inc. (the "Pizza Hut
Coop")(together with the KFC Coop, the "Concept Coops"), both newly organized
Delaware corporations with shareholder members who will be Operators of Taco
Bell and Pizza Hut Retail Outlets, respectively.
Tricon, together with its subsidiaries, is (i) the franchisor and
licensor of the KFC, Taco Bell and Pizza Hut concepts (the "Tricon Concepts"),
(ii) the developer of products used and sold by the Tricon Concepts, and (iii)
an operator of many Retail Outlets. Tricon will not be a member of the Unified
Coop. However, as the franchisor of the Tricon Concepts and as an operator of
many Retail Outlets, Tricon is strongly committed to the success of the
Corporate Reorganization and the formation of the Unified Coop. Tricon has
entered into an expense sharing arrangement under which Tricon will provide
$400,000 to the Unified Coop to assist the Unified Coop with organizational
expenses and Tricon has agreed to purchase through the Unified Coop virtually
all of the Goods and Equipment needed for the Tricon operated Retail Outlets.
Tricon will also be a stockholder member of each Concept Coop and will purchase
the number of shares of stock required to be a member in good standing of each
Concept Coop.
To fully realize the benefits of joining the Unified Coop, the KFC Coop
Board seeks your approval of the "Corporate Reorganization," as more fully
explained below. If the Corporate Reorganization is approved, the KFC Coop will
transfer certain assets, liabilities and members' equity that relate
specifically to its Taco Bell operations to the Taco Bell Coop, a newly
organized corporation. Through consummation of a simultaneous tender offer (the
"Tender Offer"), the KFC Coop will effect a division of its Taco Bell business
so that the KFC Coop Members who are Taco Bell Operators will become members of
the Taco Bell Coop and will no longer be Members of the KFC Coop. Concurrently
herewith, the KFC Coop will transfer certain assets and liabilities to the
Unified Coop, in exchange for its membership interest therein. To implement
these transactions, the KFC Coop Board seeks approval of the Corporate
Reorganization which includes approval for (i) its officers to execute the
Operating Agreement for the Unified Coop, the Agreement and Plan of Corporate
Separation, the Asset Contribution and Liability Assumption Agreement, and the
Purchasing Program Management Agreement, all dated as of the Closing Date
(collectively, the
1
<PAGE> 9
"Corporate Reorganization Agreements") (as used in this Proxy Statement, the
"Closing Date" refers to the date on which the Corporate Reorganization
occurs); (ii) the amendment of the KFC Coop's Bylaws to conform the patronage
dividend program to the operations of the Unified Coop and to makes other
changes which give effect to the Taco Bell Coop split-off; and (iii) the
authorization of such other action as may be necessary to carry out the
purposes of the Corporate Reorganization.
Upon completion of the Corporate Reorganization, the KFC Coop will
continue to operate and will concentrate on its KFC purchasing cooperative
business. Although this business will be out-sourced and administered by the
Unified Coop, the purchasing program will be subject to significant control,
advice and counsel of the KFC Coop. The KFC Coop Board will continue to
exercise policy-making decisions and administer the patronage dividend program
in accordance with past practices.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, Members owning shares of KFC Coop Membership
Stock will be asked to consider and to vote upon the following matters: (i) a
proposal to approve the Corporate Reorganization of the KFC Coop which involves
(a) the authorization of the execution of the Corporate Reorganization
Agreements and the consummation of the transactions contemplated therein, as
more fully described below; (b) the amendment of the KFC Coop Bylaws to conform
the patronage dividend program to the operations of the Unified Coop and to
make other changes which reflect the Taco Bell Coop split-off; and (c) the
authorization of such other action by the KFC Coop Board and any of its
officers as may be necessary or appropriate to carry out the objects, intents,
and purposes of the Corporate Reorganization and (ii) such other business
related to the Corporate Reorganization as may properly come before the meeting
or any adjournment thereof.
RECOMMENDATION OF THE KFC COOP BOARD
The KFC Coop Board has approved the Corporate Reorganization,
including the formation and split off of the Taco Bell Coop, the transfer of
certain assets to the Taco Bell Coop and the Unified Coop, the outsourcing of
the KFC Coop's purchasing program to the Unified Coop, the amendments to the
KFC Coop's Bylaws, and the approval of the Corporate Reorganization Agreements.
The KFC Coop Board recommends that Members vote FOR approval of the Corporate
Reorganization.
2
<PAGE> 10
VOTING RIGHTS
Only holders of record of shares of KFC Coop Membership Stock as of
the close of business on the Special Meeting Record Date ("Holders of Record")
will be entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Holders of Record are entitled to one vote
per share on any matter which may properly come before the Special Meeting and
which they are entitled to vote upon.
VOTING GROUPS
Since the Corporate Reorganization will affect Holders of Record of
Series O and P KFC Coop Membership Stock (the "Taco Bell Members") in a manner
differently from all other Holders of Record, the KFC Coop Board has determined
that the Corporate Reorganization proposal will be considered at the Special
Meeting separately by two voting groups of Holders of Record (the "Voting
Groups"). The first Voting Group will consist of all Holders of Record present
at the Special Meeting, either in person or by properly executed proxy. The
second Voting Group will consist of only Holders of Record who are Taco Bell
Members (the "Taco Bell Voting Group") and who are present at the Special
Meeting, either in person or by properly executed proxy. In effect, the Taco
Bell Voting Group will vote twice on the Corporate Reorganization proposal.
The approval of the Corporate Reorganization is conditioned upon
receipt of the affirmative vote of (a) a majority of all outstanding shares of
KFC Coop Membership Stock held by each Voting Group and (b) two-thirds of the
Members of each Voting Group present, either in person or by properly executed
proxy, at the Special Meeting.
TACO BELL MEMBERS
In connection with the Corporate Reorganization, the Taco Bell Members
are receiving the Tender Offer which accompanies this Proxy Statement. The
Tender Offer gives Taco Bell Members the opportunity to exchange their shares
of KFC Coop Membership Stock and Store Stock for an equal number of shares of
Taco Bell Coop Membership Common Stock and Store Common Stock. Pursuant to the
consummation of the Agreement and Plan of Corporate Separation and the Tender
Offer, the KFC Coop will split-off its Taco Bell business so that the Taco Bell
Members will become members of the Taco Bell Coop and will no longer be Members
of the KFC Coop.
If the Corporate Reorganization is not approved, the Tender Offer will
not be consummated, the Taco Bell Members will remain members of the KFC Coop,
and the KFC Coop will not enter into the Corporate Reorganization Agreements,
but will continue to operate in a manner and structure consistent with its
operations as of the date of this Proxy Statement. The KFC Coop would expect to
continue discussions with Tricon and franchisees to explore alternative ways of
reducing store delivered costs to Retail Outlets and achieving the other goals
stated herein.
If the Corporate Reorganization is approved, but a Taco Bell member
does not exchange his or her shares of KFC Coop stock pursuant to the Tender
Offer, that Taco Bell Member's share of KFC Coop Membership Stock will remain
outstanding and, assuming that fewer than 400 shares of KFC Coop Store Stock
remain owned by Taco Bell Members, will be automatically converted into a
Series N share of KFC Coop Membership Stock in accordance with the KFC Coop's
Bylaws. Additionally, if the Corporate Reorganization is completed, the KFC
Coop will no longer provide any services to Taco Bell Members and will
discontinue all patronage dividend programs for Taco Bell Members. Although
Taco Bell Members who do not tender their shares of KFC Coop stock will retain
their KFC Coop Membership Stock and KFC Coop Store Stock, they will otherwise
not enjoy any benefits of being a Member of the KFC Coop.
PROXIES
The accompanying form of proxy is for use at the Special Meeting if a
Member will be unable to attend in person. The proxy may be revoked by the
holder of KFC Coop Membership Stock at any time before it is exercised by
submitting to the KFC Coop written notice of revocation, a properly executed
proxy of a later date or by attending the Special Meeting and electing to vote
in person. All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If no specification is made, the proxies will be
voted in favor of approval of the Corporate Reorganization and the transactions
contemplated thereby. The KFC Coop Board is unaware of any other matters that
may be presented for action at the Special Meeting.
Failure to return an executed proxy card or to vote in person at the
Special Meeting or voting to abstain will constitute, in effect, a vote against
approval of the Corporate Reorganization.
NO APPRAISAL RIGHTS
Members of the KFC Coop will not be entitled to appraisal rights under
the Delaware General Corporation Law (the "Delaware Law") in connection with
the Corporate Reorganization.
SELECTED FINANCIAL DATA
The selected financial data set forth below for KFC Coop as of October 31, 1997
and 1996 and for each of the three years in the period ended October 31, 1997
are derived from audited financial statements included in the KFC Coop's 1997
Annual Report to Shareholders (the "Annual Report") accompanying this proxy
statement. See "Where You Can Find More Information." The selected financial
data set forth below as of October 31, 1995, 1994 and 1993 and for each of the
two years in the period ended October 31, 1994 are derived from financial
statements not included elsewhere herein. The selected financial data set forth
below as of July 31, 1998 and 1997 and for the nine months then ended have been
derived from unaudited financial statements included in the KFC Coop's Report on
Form 10-Q (the "Form 10-Q") incorporated herein by reference. See "Where You
Can Find More Information." The selected unaudited pro forma financial data for
the nine months ended July 31, 1998 and for the year ended October 31, 1997 give
pro forma effect to the Corporate Reorganization as if it had been consummated
as of November 1, 1996. The selected unaudited pro forma financial data as of
July 31, 1998 gives pro forma effect to the Corporate Reorganization as if it
had been consummated on July 31, 1998. The selected financial data set forth
below should be read in conjunction with the consolidated financial statements
and related notes thereto in the Annual Report and the Form 10-Q.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------------------- -----------------------------------------------------------------------
NINE MONTHS
NINE MONTHS YEAR ENDED ENDED JULY 31, YEAR ENDED OCTOBER 31,
ENDED OCTOBER 31, ------------------ ---------------------------------------------------
STATEMENT OF EARNINGS DATA: JULY 31, 1998 1997 1998 1997 1997 1996 1995 1994 1993
------------- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $104,776 $145,383 $472,725 $443,337 $600,132 $580,441 $537,116 $528,010 $501,487
Income before patronage
dividend and income taxes 1,948 3,810 2,217 3,294 4,153 5,057 2,771 1,343 2,055
Patronage dividend 1,636 2,662 1,798 2,226 2,890 2,762 1,246 569 888
Net income 175 672 237 625 748 1,386 909 461 749
BALANCE SHEET DATA:
(AT PERIOD END)
Total assets $ 47,200 $ 50,453 $ 54,681 $ 49,800 $ 49,445 $ 42,381 $ 42,767 $ 43,364
Long-term obligation 3,000 3,000 3,000 3,000 3,000 3,000 3,000 --
</TABLE>
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THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to Members of the KFC Coop in
connection with the solicitation of proxies from Holders of Record of the KFC
Coop Membership Stock as of the Special Meeting Record Date, for use at the
Special Meeting to be held on February 26, 1999, at 10:00 a.m. (Eastern Standard
Time) at the KFC Coop's headquarters at 950 Breckenridge Lane, Louisville,
Kentucky 40232 and at any adjournment or postponement thereof. This Proxy
Statement is first being mailed to the Members on or about January 28, 1999.
The KFC Coop's telephone number is (502) 896-5900.
MATTERS TO BE CONSIDERED
At the Special Meeting, Members owning shares of KFC Coop Membership
Stock will be asked to consider and to vote upon the following matters:
(i) CORPORATE REORGANIZATION. A proposal to approve the
Corporate Reorganization of the KFC Coop, as currently
approved by the KFC Coop Board. Approval of the
Corporate Reorganization is subject to final approval
by the KFC Coop Board. The Corporate Reorganization
involves (i) the authorization of the execution of the
Corporate Reorganization Agreements and the
consummation of the transactions contemplated therein,
as more fully described below; (ii) the amendment of
the KFC Coop Bylaws to conform the patronage dividend
program to the operations of the Unified Coop and to
make other changes which reflect the Taco Bell Coop
split-off; and (iii) the authorization of such other
action by the KFC Coop Board and any of its officers as
may be necessary or appropriate to carry out the
objects, intents, and purposes of the Corporate
Reorganization.
(ii) OTHER BUSINESS. Such other business related to the
Corporate Reorganization as may properly come before
the meeting or any adjournment thereof. The KFC Coop
Board currently knows of no other business to be
brought before the Special Meeting.
RECOMMENDATION OF THE KFC COOP BOARD
The KFC Coop Board has approved the Corporate Reorganization,
including the organization and split off of the Taco Bell Coop, the transfer of
certain assets to the Taco Bell Coop and the
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Unified Coop, the outsourcing of the KFC Coop's purchasing program to the
Unified Coop, the amendments to the KFC Coop's Bylaws, and the approval of the
Corporate Reorganization Agreements. The KFC Coop Board recommends that Members
vote FOR approval of the Corporate Reorganization.
PROXIES
The accompanying form of proxy is for use at the Special Meeting if a
Member will be unable to attend in person. The proxy may be revoked by the
holder of KFC Coop Membership Stock at any time before it is exercised by
submitting to the KFC Coop written notice of revocation, a properly executed
proxy of a later date or by attending the Special Meeting and electing to vote
in person. Written notices of revocation and other communications with respect
to the revocation of the proxies should be addressed to the KFC Coop, 950
Breckinridge Lane, Louisville, Kentucky 40232, Attention: William E. Allen,
Secretary. All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If no specification is made, the proxies will be
voted in favor of approval of the Corporate Reorganization and the transactions
contemplated thereby. The KFC Coop Board is unaware of any other matters that
may be presented for action at the Special Meeting. If other matters do
properly come before the Special Meeting, however, it is intended that shares
represented by proxies in the accompanying form will be voted or not voted by
the persons named in the proxies in their discretion, provided that no proxy
that is voted against approval of the Corporate Reorganization will be voted in
favor of any adjournment or postponement of the Special Meeting for the purpose
of soliciting additional proxies.
Failure to return an executed proxy card or to vote in person at the
Special Meeting or voting to abstain will constitute, in effect, a vote against
approval of the Corporate Reorganization.
The KFC Coop will bear the cost of the solicitation. Certain
directors, officers and other employees of the KFC Coop, not specially employed
for this purpose, may solicit proxies, without additional remuneration by
personal interview, mail, telephone, facsimile or other electronic means.
VOTING RIGHTS
Only holders of record of shares of KFC Coop Membership Stock as of
the close of business on the Special Meeting Record Date ("Holders of Record")
will be entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Holders of Record are entitled to one vote
per share on any matter which may properly come before the Special Meeting and
which they are entitled to vote upon. The presence, either in person or by
properly executed proxy, of Members representing a majority of those entitled
to vote at the Special Meeting is necessary to constitute a quorum at the
Special Meeting.
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VOTING GROUPS
Since the Corporate Reorganization will affect Holders of Record of
Series O and P KFC Coop Membership Stock (the "Taco Bell Members") in a manner
differently from all other Holders of Record, the KFC Coop Board has determined
that the Corporate Reorganization proposal will be considered at the Special
Meeting separately by two voting groups of Holders of Record (the "Voting
Groups"). The first Voting Group will consist of all Holders of Record present
at the Special Meeting, either in person or by properly executed proxy. The
second Voting Group will consist of only Holders of Record who are Taco Bell
Members (the "Taco Bell Voting Group") and who are present at the Special
Meeting, either in person or by properly executed proxy. In effect, the Taco
Bell Voting Group will vote twice on the Corporate Reorganization proposal.
The approval of the Corporate Reorganization is conditioned upon
receipt of the affirmative vote of (a) a majority of all outstanding shares of
KFC Coop Membership Stock held by each Voting Group and (b) two-thirds of the
Members of each Voting Group present, either in person or by properly executed
proxy, at the Special Meeting.
As of January 27, 1999, there were 688 shares of KFC Coop Membership
Stock outstanding and entitled to vote at the Special Meeting, of which 94 were
owned by Members in the Taco Bell Voting Group. As of the Special Meeting
Record Date, the KFC Coop knows of no person who beneficially owns more than
five percent of the issued and outstanding shares of KFC Coop Membership Stock.
NO APPRAISAL RIGHTS
Members of the KFC Coop will not be entitled to appraisal rights under
the Delaware General Corporation Law (the "Delaware Law") in connection with
the Corporate Reorganization.
THE CORPORATE REORGANIZATION
BACKGROUND AND REASONS FOR THE CORPORATE REORGANIZATION
The KFC Coop was organized in 1978 to serve as a national purchasing
cooperative on behalf, and for the benefit, of KFC Operators, including KFC
National Management Company ("KFC Management"), a subsidiary of KFC Corporation
("KFCC"). The KFC Coop was organized by KFCC and the KFC franchisees' National
Franchisee Advisory Council with the objectives of: (i) obtaining Goods and
Equipment at the lowest prices and (ii) having the procurement function on
behalf of Operators of KFC Retail Outlets handled on an arm's-length basis
rather than through KFCC.
In 1989, KFCC announced its intention to withdraw its support for the
purchasing programs of the KFC Coop and to begin direct purchasing from
suppliers and distributing to KFCC-owned and KFC franchisee Retail Outlets
through a wholly owned division of PepsiCo, PFS, which had
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a long-standing program of purchasing and distributing to PepsiCo owned and
franchised Taco Bell and Pizza Hut Retail Outlets. In response to KFCC's action,
the KFC Coop Board approved sales by the KFC Coop directly and through
distributors of Goods and Equipment to certain other restaurant systems,
including Taco Bell. In November 1992, the KFC Coop Members adopted amendments
to its Certificate of Incorporation and Bylaws to provide for membership in the
KFC Coop by Operators of Taco Bell Retail Outlets. In addition, during fiscal
1992, through a newly formed subsidiary, the KFC Coop commenced purchasing and
distribution for Operators of KFC franchised Retail Outlets in Canada. In fiscal
1997, the KFC Coop established a new subsidiary to develop the KFC Coop's sales
of Goods and Equipment to quick service restaurant operators located outside of
the United States and Canada.
In October 1997, PepsiCo spun off Tricon with its three dominant
quick-service restaurant concepts, KFC, Taco Bell and Pizza Hut. In anticipation
of the spin-off, PepsiCo sold its distribution division, PFS, to AmeriServe Food
Distributors, Inc. ("AmeriServe"). With its purchase of PFS, AmeriServe acquired
a long term distribution commitment from Tricon which may extend until 2007 with
respect to all Tricon-operated Retail Outlets and certain Pizza Hut and Taco
Bell Retail Outlets sold by Tricon to franchisees. Before PepsiCo's sale of PFS
to AmeriServe and PepsiCo's spin-off of Tricon, PepsiCo viewed its purchasing
and distribution activities as an opportunity for profit through the sale and
distribution of Goods and Equipment to KFC, Taco Bell and Pizza Hut franchisees.
Following the Tricon spin-off, Tricon, which does not own a distribution
division like PFS, initiated a comprehensive review of its domestic Supply Chain
Management activities, and a comparison of those activities with the purchasing
activities of the KFC Coop on behalf of KFC and Taco Bell franchisees. Following
the Tricon spin-off, representatives of the KFC Coop and Pizza Hut franchisees
and their organization, the IPHFHA, Inc., renewed their occasional conversations
concerning a purchasing program administered by the KFC Coop on behalf of Pizza
Hut franchisees. The KFC Coop initiated a pilot purchasing program for Pizza Hut
Franchisees in the Fall of 1998. Discussions among the KFC Coop and KFC, Pizza
Hut and Taco Bell franchisees concerning the formation of a unified purchasing
cooperative for Goods and Equipment in the United States and Canada began in
earnest during the Fall of 1997. During the Spring of 1998, Tricon's internal
evaluation of domestic purchasing programs indicated to Tricon that the best
approach would be a combined purchasing organization, including Tricon and its
KFC, Pizza Hut and Taco Bell franchisees. Discussions with Tricon about
inclusion of Tricon in a three-system purchasing organization began in earnest
in June of 1998 when Tricon agreed in principle to an organizational structure
with a unified coop owned by the Concept Coops representing the KFC, Taco Bell
and Pizza Hut systems, and a governance structure for the unified coop and the
Concept Coops in which franchisee representatives would have a majority of
votes. By mid-October 1998, agreement on substantially all material operating
and governance issues had been reached.
It was determined to retain the KFC Coop's historic, long term
valuation of its shares of Membership Common Stock at $10 per share and its
Store Common Stock at $400 per share, and to similarly value the Taco Bell and
Pizza Hut Coop shares at $10 per membership share and $400 per store share for
three reasons. First, the KFC Coop had been selling its membership shares for
$10 per share since its inception, and had been selling its store shares for
$400 per share for well over 15 years, and it was thought appropriate to
continue this valuation tradition. Second, it was determined that a sale of
store shares by the Taco Bell and Pizza Hut Coops for $400 per share would
provide the basic equity capital needed for the Taco Bell and Pizza Hut Coops to
commence operations and make their initial capital contribution to the Unified
Coop. Third, the sale of membership and store shares is not viewed as the sale
of an investment, but rather the sale of membership interests which allow the
members to participate in the operations and governance of the purchasing
programs of the Concept Coops and the Unified Coop.
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The KFC Coop Board considered alternatives other than the Corporate
Reorganization. The KFC Coop Board considered remaining independent of Tricon
and continuing its historic purchasing programs for KFC franchisees, and,
perhaps, some Taco Bell franchisees. The KFC Coop Board rejected this
alternative because it is unclear that a purchasing organization purchasing
essentially for just KFC franchisees would have the purchasing volume to
effectively purchase at the lowest possible prices. The KFC Coop Board
considered a KFC, Taco Bell and Pizza Hut franchisee only purchasing
organization, which it considered inferior to a purchasing organization which
included Tricon (a) because inclusion of Tricon allows the purchasing
organization to purchase for the entire Tricon system without the confusion of
duplicate purchasing organizations, and (b) because Tricon agreed to a
governance structure which insures that franchisees have a majority of the votes
in the governing structure of the Unified Coop and the Concept Coops.
On October 15, 1998, the KFC Coop Board unanimously approved the
Corporate Reorganization described in this Proxy Statement, subject to the KFC
Coop Board's final approval of definitive documents and business plans and
arrangements.
In addition to reducing the store delivered costs of Goods and
Equipment, the goals of the Corporate Reorganization are to:
- Allow the KFC, Taco Bell and Pizza Hut franchisees to
work together to identify common interests as Tricon
franchisees. Historically, the KFC, Taco Bell and
Pizza Hut systems were administered separately in
most respects and each system's franchisees have had
their own franchisee organizations. Concept Coops for
each system will be the members of the Unified Coop
which will be governed by a board of directors with
franchisees from each system;
- Allow Tricon and its franchisees to work together.
There are often tensions between franchisor and
franchisees concerning a myriad of issues such as the
terms of franchisee agreements, the expenditure of
marketing funds, the advisability of product
promotions and changes, and the franchisor's role in
the procurement and distribution of Goods and
Equipment. The Unified Coop should substantially
align the interests of Tricon as operator and
franchisor and of Tricon's franchisees in the
procurement of Goods and Equipment at the lowest
possible sustainable store delivered price;
- Integrate the current purchasing functions of the KFC
Coop and Tricon's Supply Chain Management, Tricon's
internal purchasing division, in a way that
identifies and uses the best practices of each
organization;
- Increase the purchasing power and leverage of the
Operators' purchasing cooperative by allowing the
purchasing cooperative to make larger volume purchase
commitments and to speak with one consistent voice
with suppliers;
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- Eliminate duplicate overhead through the elimination
of duplicate administrative and purchasing functions.
Initial estimates are that combined Tricon and KFC
Coop annual savings will reach approximately
$2,500,000;
- Allow a higher level of sophistication in purchasing
programs and partnerships with suppliers by combining
the expertise in each purchasing program and by
allowing more specialized purchasing supported by a
larger organization;
- Eliminate most sheltered income, which includes
rebates, volume discounts, and promotional
allowances, that does not benefit all Operators
equally. Tricon has agreed to forego the collection
of most sheltered income from suppliers and
distributors which franchisees believe will allow
suppliers and distributors to charge lower prices;
- End confusion for valued suppliers and distributors
caused by uncoordinated, separate communication to
suppliers and distributors from Tricon's Supply Chain
Management and a separate franchisee purchasing
organization such as the KFC Coop concerning such
matters as requirements and purchase commitments and
over who "speaks" for the restaurant system; and
- Facilitate taking advantage of both Title
Transactions and Contract Transactions, as defined
below. Historically, the KFC Coop's operations have
been characterized by the KFC Coop taking title to
Goods and Equipment purchased from vendors and
reselling Goods and Equipment to Operators and their
distributors. By taking title, the KFC Coop has
assumed the administrative burden of obtaining
payment from Operators and their distributors.
Historically, the operations of Supply Chain
Management have been characterized by the negotiation
of terms with suppliers pursuant to which suppliers
sell Goods and Equipment directly to Tricon and to
franchisee Operators and their distributors without
assuming any credit risks. For instance, currently as
a general matter, suppliers of Goods to AmeriServe
for resale by AmeriServe to Tricon take the credit
risk of payment for those Goods by AmeriServe, while
suppliers selling to distributors through the KFC
Coop look to the KFC Coop rather than to the
distributor for payment. The Unified Coop will
combine the KFC Coop's expertise with respect to
Title Transactions and Supply Chain Management's
expertise with respect to Contract Transactions and
allow the organization to evaluate on an item by item
and program by program basis which kind of
transaction will result in the lowest possible
sustainable store delivered prices.
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SUMMARY OF THE CORPORATE REORGANIZATION
To achieve the aforementioned goals, the KFC Coop Board has approved
the Corporate Reorganization. The Corporate Reorganization involves (i) the
execution of the Agreement and Plan of Corporate Separation (the "Agreement and
Plan of Corporate Separation"), the Asset Contribution and Liability Assumption
Agreement (the "Asset Contribution and Liability Assumption Agreement"), the
Operating Agreement for the Unified FoodService Purchasing Coop, LLC (the
"Operating Agreement"), and the Purchasing Program Management Agreement (the
"Purchasing Program Management Agreement"), all dated as of the Closing Date,
and the consummation of the transactions contemplated therein; (ii) the
amendment of the KFC Coop Bylaws to conform the patronage dividend program to
the operations of the Unified Coop and to makes other changes which reflect the
Taco Bell Coop split-off; and, (iii) the authorization of such other action as
may be necessary to carry out the purposes of the Corporate Reorganization. The
discussion in this Proxy Statement of the Corporate Reorganization and the
description of the principal terms of the Corporate Reorganization Agreements
is subject to and qualified in their entirety by (a) reference to the drafts of
the Corporate Reorganization Agreements, copies of which are attached as
Appendices A - D and incorporated herein by reference, which are being
submitted for approval in substantially the form attached and (b) the approval
of the authorization of the KFC Coop Board and any of its officers to take such
other actions as may in their discretion be necessary or appropriate to carry
out the objects, intents, and purposes of the Corporate Reorganization.
To facilitate the success of the Corporate Reorganization, three new
entities will be formed. On the Closing Date, the Unified Coop will be organized
with the KFC Coop, the Taco Bell Coop, and the Pizza Hut Coop as its initial
members. The Unified Coop will provide the support and operational services for
each Concept Coop through combined administrative and purchasing functions in a
manner consistent with the current operation of the KFC Coop. Before the Closing
Date, the KFC Coop will organize the Taco Bell Coop as a wholly owned
subsidiary. The KFC Coop will transfer certain assets and liabilities that
relate specifically to its Taco Bell operations to the Taco Bell Coop in
exchange for that number of shares of the Taco Bell Coop's stock equal to the
number of shares of KFC Coop stock tendered by Taco Bell Members in the Tender
Offer. These assets and liabilities being transferred to the Taco Bell Coop
include Taco Bell product inventory and equipment, records of Taco Bell
operations, miscellaneous Taco Bell supplies and signs, purchase commitment
liabilities, intercompany liabilities attributable to accounts payable and other
liabilities related to Taco Bell operations paid or assumed by the KFC Coop. The
KFC Coop will then exchange such shares of Taco Bell Coop stock with the
Tendering Members, as defined below, for their shares of KFC Coop stock.
Furthermore, in exchange for its membership interest in the Unified Coop, the
KFC Coop will contribute cash and certain operating assets to the Unified Coop.
These assets being transferred to the Unified Coop specifically exclude those
assets being transferred to the Taco Bell Coop, but include other contracts and
other commitments to which the KFC Coop is a party or is otherwise obligated;
furniture, fixtures, machinery, equipment and other tangible personal property
owned by the KFC Coop; real property leases; and, prepaid assets. See "Unaudited
Pro Forma Condensed Consolidated Financial Statements."
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Following the Corporate Reorganization, much of the KFC Coop's
organization and its relationship with its Members will remain the same.
Pursuant to the Operating Agreement, the Purchasing Program Management Agreement
and the KFC Coop Bylaws, it is expected that the patronage dividend program will
continue to be administered in accordance with past practices. The Taco Bell
Coop will not likely pay significant patronage dividends to its members until it
has had an opportunity to accumulate reserves and working capital which, in the
judgement of the Taco Bell Coop Board of Directors (the "Taco Bell Coop Board"),
are adequate for operations.
Additionally, the remaining Members will continue to elect the
directors of the KFC Coop Board by series of KFC Coop Membership Stock held. The
KFC Coop Board will remain independent and will continue to manage the KFC
Coop's business affairs, as well as provide significant control, advice and
counsel to the Unified Coop regarding operations of the KFC purchasing program.
The Unified Coop will provide all of the purchasing functions previously
provided by the KFC Coop in a fashion similar to the KFC Coop's current
operations. While the KFC Coop will terminate all of its employees, the Unified
Coop will make offers of employment to these employees on terms and conditions
substantially similar to those currently in effect between the KFC Coop and its
employees. These aspects of the Corporate Reorganization are described in more
detail below.
The KFC Coop's purchasing programs have involved the KFC Coop
historically taking title to Goods and Equipment purchased from suppliers and
the resale by the KFC Coop of those Goods and Equipment to Operators and their
distributors, with the KFC Coop taking the credit risks on sales to Operators
and distributors (such transactions are hereinafter referred to as "Title
Transactions"). The purchasing programs of Tricon Supply Chain Management
("SCM") have historically involved non-title transactions in which SCM
negotiates the price and other terms under which suppliers of Goods and
Equipment will sell directly to Operators and distributors (such transactions
are hereinafter referred to as "Contract Transactions"). The integration of the
KFC Coop's purchasing program and SCM's purchasing programs will give the
Unified Coop flexibility to take advantage of both Title Transactions and
Contract Transactions in order to obtain the lowest possible sustainable
restaurant delivered prices. The advantages of Title Transactions include the
ability to control the entire supply chain and the lower prices which suppliers
are sometimes willing to accept in order to avoid distributor and Operator
credit risks. The advantages of Contract Transactions include avoiding credit
risks and decreasing the need for working capital to provide the funds necessary
to carry accounts receivable from distributors and Operators.
In addition to agreeing to integrate SCM's purchasing programs with
those of the Unified Coop, Tricon has also committed to contribute $400,000 to
the Unified Coop to assist the Unified Coop with organizational expenses and
purchase through the Unified Coop virtually all of the Goods and Equipment
needed for the Tricon operated Retail Outlets.
The Corporate Reorganization Agreements will be entered into
simultaneously with the effectiveness of the Bylaw amendments. None of these
agreements or amendments will become effective unless all become effective. It
is the KFC Coop Board's belief that Tricon and all other parties are prepared
to sign the Corporate Reorganization Agreements in substantially the forms
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attached to this Proxy Statement and all other documents necessary to form the
Unified Coop shortly following approval of the Corporate Reorganization by the
Members. The Corporate Reorganization is subject to the final approval of the
KFC Coop Board.
AGREEMENT AND PLAN OF CORPORATE SEPARATION
Parties. The parties to the Agreement and Plan of Corporate
Separation, attached as Appendix A to this Proxy Statement, are (a) the KFC
Coop, (b) the Taco Bell Members who sign the Signature Page and Letter of
Transmittal attached to the Agreement and Plan of Corporate Separation and
tender their stock certificates representing shares of KFC Coop Membership
Stock and KFC Coop store common stock ("KFC Coop Store Stock") (the "Tendering
Members"), and (c) the Taco Bell Coop.
Purpose. The parties are entering into the Agreement and Plan of
Corporate Separation, in part, so that the Taco Bell Members can become members
of a Concept Coop in which only Tricon and Taco Bell franchisees are members
and the KFC Members can become members of a Concept Coop in which only Tricon
and KFC franchisees are members (assuming all Taco Bell Members tender their
shares of stock in the KFC Coop). As the needs and requirements of KFC
Operators and Taco Bell Operators may differ, splitting off the Taco Bell
Members into a separate entity will allow the Taco Bell Coop and the KFC Coop
to be responsive to the different needs and requirements of the Taco Bell
Operators and KFC Operators, respectively.
The Corporate Separation. The KFC Coop has identified certain assets
(the "Taco Bell Assets") and liabilities (the "Taco Bell Liabilities") of the
KFC Coop that relate specifically to the KFC Coop's Taco Bell operations,
including, but not limited to, Taco Bell product inventory and equipment,
records of Taco Bell operations, miscellaneous Taco Bell supplies and signs,
purchase commitment liabilities, intercompany liabilities attributable to
accounts payable and other liabilities related to Taco Bell operations paid or
assumed by the KFC Coop (the "Intercompany Liability"), and stockholders'
equity related to the KFC Coop's Taco Bell operations, which equity represents:
(i) the amount paid for KFC Coop Membership Stock and KFC Coop Store Stock by
Taco Bell Members and (ii) retained earnings attributable to the KFC Coop's
Taco Bell operations on the basis of the past patronage of Taco Bell Members
with the KFC Coop.
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The KFC Coop desires to effect a division of the business of the KFC
Coop by transferring all of the Taco Bell Assets (except for an amount of cash
[the "Excluded Assets"] equal to the sum of $10 for each share of KFC Coop
Membership Stock and $400 for each share of KFC Coop Store Stock, in each case,
owned by Taco Bell Members who are not Tendering Members, if any ["Non-
Tendering Members"]), Taco Bell Liabilities, and stockholders' equity related
to the Taco Bell operations, to the Taco Bell Coop, in exchange for (i) a
Promissory Note in an original principal amount equal to the Intercompany
Liability and (ii) the original issue to the KFC Coop of one share of the Taco
Bell Coop's membership common stock ("Taco Bell Coop Membership Stock") for
each Tendering Member's share of KFC Coop Membership Stock and one share of the
Taco Bell Coop's store common stock ("Taco Bell Coop Store Stock") for each
share of KFC Coop Store Stock owned by each Tendering Member, which will
constitute all of the outstanding capital stock of the Taco Bell Coop. The KFC
Coop will retain all other assets and liabilities now owned by the KFC Coop.
The Taco Bell Coop is obligated to reimburse the KFC Coop for the
Intercompany Liability pursuant to the terms of a Promissory Note and Security
Agreement that will be executed in connection with the Agreement and Plan of
Corporate Separation by the Taco Bell Coop. The Promissory Note provides that
the Intercompany Liability is payable in six installments of principal and
interest thereon at the prime rate reported in the "Money Rates" section of the
Wall Street Journal on the Closing Date. All principal and interest will be due
and payable in any event on or before the six month anniversary of the Closing
Date. The amount of the Intercompany Liability as of July 31, 1998 was
approximately $10,677,000. Pursuant to the terms of the Security Agreement, the
Taco Bell Coop grants a security interest to the KFC Coop in all of its assets,
including accounts receivable, and the KFC Coop may exercise all of the rights,
options, and remedies of a secured party upon default as provided for under the
Uniform Commercial Code as enacted in the Commonwealth of Kentucky.
Concurrently with the solicitation of proxies, the KFC Coop is making a
Tender Offer to the Taco Bell Members to offer to transfer to the Tendering
Members all of the shares of the Taco Bell Coop (the "Taco Bell Coop Shares")
previously acquired by it, in the manner described above, in exchange for the
surrender by the Tendering Members of all of their shares of KFC Coop Membership
Stock and KFC Coop Store Stock. The exchange of shares will occur on the Closing
Date. This transaction is intended to qualify as a tax-free split off under
Section 355 of the Internal Revenue Code of 1986, as amended (hereinafter
referred to as the "Code"). See "Federal Income Tax Consequences" below.
To facilitate the Tender Offer, all Proxy Statements delivered to Taco
Bell Members are accompanied with a definitive Taco Bell Member Tender Offer
dated January 28, 1999. A Subscription Agreement will also be delivered to other
prospective Taco Bell Operators, including Tricon, for the purpose of offering
additional Taco Bell Coop Stock to all other Operators of Taco Bell Retail
Outlets.
Taco Bell Coop Member Agreements. By signing the Agreement and Plan of
Corporate Separation, and the attached Letter of Transmittal, and by tendering
one's shares, the Taco Bell Coop members: (i) commit to purchase "virtually all"
of their Goods and Equipment for use in their Retail Outlets through the
purchasing programs of the Unified Coop and Taco Bell Coop, (ii) agree to the
terms of the Taco Bell Coop patronage dividend program, (iii) agree to abide by
the terms and commitments of the Taco Bell Coop Bylaws, and (iv) agree to
coordinate all requests for supplier and distributor approval through Tricon.
Representations and Warranties. The Agreement and Plan of Corporate
Separation contains representations and warranties by the KFC Coop to the
Tendering Members, among other things, that: (i) as of the Closing Date the Taco
Bell Coop will be duly organized, validly existing and in good standing and will
have all necessary corporate power and authority to conduct the business of a
purchasing cooperative and to execute, deliver and perform its obligations under
the agreement; (ii) the agreement complies with the KFC Coop's Certificate of
Incorporation and Bylaws, and any judgment, decree, writ, injunction, order or
award of any arbitration panel, court or governmental authority applicable to
the KFC Coop; (iii) the KFC Coop has capitalized the Taco Bell Coop and is
transferring good and
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marketable title in the Taco Bell Coop Shares to the Tendering Members; and (iv)
the KFC Coop is transferring good and marketable title to the Taco Bell Assets
(other than the Excluded Assets) to the Taco Bell Coop free and clear of all
liens, pledges, encumbrances, security interests, claims, charges, options and
restrictions except certain disclosed liabilities.
The Agreement and Plan of Corporate Separation also contains
representations and warranties by each Tendering Member to the KFC Coop, among
other things, that: (i) the Tendering Member has the power, authority and
capacity to transfer the Tendering Member's shares of KFC Coop Membership Stock
and KFC Coop Store Common Stock to the KFC Coop; (ii) the execution of the
Agreement and Plan of Corporation Separation is in compliance with the
organizational documents of the Tendering Member, if applicable, and any
judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority applicable to the Tendering Member; (iii) the
Tendering Member will transfer good and marketable title to the shares of KFC
Coop Membership Stock and KFC Coop Store Common Stock tendered, free and clear
of all liens, pledges, encumbrances, security interests, claims, charges,
options and restrictions whatsoever; and (iv) the Taco Bell Coop Shares to be
acquired by the Tendering Member are not being acquired with a view to
distribution and the Taco Bell Coop Shares may not be sold, transferred,
pledged, mortgaged, gifted, or hypothecated to any third party, either
voluntarily or by operation of law.
Indemnification. The KFC Coop is obligated to indemnify the Taco Bell
Coop from certain tax liabilities that may stem from pre-Closing Date tax
periods. Similarly, the Taco Bell Coop is obligated to indemnify the KFC Coop
from certain tax liabilities that may stem from post-Closing Date tax periods.
The KFC Coop is obligated to indemnify the Tendering Members for any
liabilities that may arise as a result of, among other things, any breach of
any representation or warranty of the KFC Coop contained in the Agreement and
Plan of Corporate Separation, or any breach of any covenant by the KFC Coop
contained in the Agreement and Plan of Corporate Separation.
Similarly, each Tendering Member is obligated to indemnify the KFC
Coop for any liabilities that may arise as a result of, among other things, any
breach of any representation or warranty of that Tendering Member contained in
the Agreement and Plan of Corporate Separation, or any breach of any covenant
by the Tendering Member contained in the Agreement and Plan of Corporate
Separation.
Federal Income Tax Consequences. The KFC Coop believes, based on a
review of applicable authorities, that the transactions contemplated by the
Agreement and Plan of Corporate Separation will be tax-free to the KFC Coop and
its shareholders under Section 355 of the Code. Specifically, the KFC Coop
believes (1) no gain or loss will be recognized by a holder of KFC Coop stock
upon the receipt of Taco Bell Coop stock; (2) no gain or loss will be
recognized by the KFC Coop or the Taco Bell Coop upon the distribution of the
Taco Bell Coop stock; and (3) no gain or loss will be recognized by the KFC
Coop or the Taco Bell Coop upon the transfer of assets from the
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KFC Coop to the Taco Bell Coop. The KFC Coop, however, has not and does not
intend to apply for a ruling from the Internal Revenue Service with respect to
the tax treatment of the transactions contemplated by the Agreement and Plan of
Corporate Separation.
If those transactions do not qualify under Section 355 of the Code,
then (i) a corporate level capital gains tax would be payable based upon the
amount by which the fair market value of the Taco Bell Coop stock distributed to
the KFC Coop stockholders exceeded the KFC Coop's adjusted tax basis therein,
and (ii) the distribution will be treated as a redemption of stock, resulting in
gain or loss to each holder of KFC Coop stock who receives shares of Taco Bell
Coop stock in the distribution.
Additional Provisions. At the time of the consummation of the
transactions contemplated in the Agreement and Plan of Corporate Separation, the
KFC Coop and the Taco Bell Coop will enter into a Continuing Services Agreement
(the "Service Agreement"). Under the terms of the Service Agreement, the Taco
Bell Coop will have the right to receive from the KFC Coop or the Unified Coop
certain resources and assets (the "Resources") of the KFC Coop or the Unified
Coop not included as part of the Taco Bell Assets, which may be attributable to
the Taco Bell Coop's business and which the Taco Bell Coop may need to operate
its business. The transfer of the Resources will only occur if the KFC Coop and
the Taco Bell Coop determine that the transfer has become necessary for the
operation of the Taco Bell Coop's business. The Resources which may be
transferred from the KFC Coop to the Taco Bell Coop will include the following:
computer support and information technology, payroll processing functions,
general accounting support and general ledger assistance, and certain employees
who perform functions relating to the Taco Bell business, including liabilities
attributable to those employees. The Service Agreement will also provide that,
for a specified time period, the KFC Coop or the Unified Coop will: (i) collect
the distributor and Taco Bell Coop Member accounts receivable attributable to
the Taco Bell Members on behalf of the Taco Bell Coop and (ii) pay the accounts
payable attributable to the Taco Bell Members (including the Intercompany
Liability generated to finance accounts receivable evidenced by the Promissory
Note) on behalf of the Taco Bell Coop. It is expected that 95% of the accounts
payable and accounts receivable will be paid off within 90 days of the Closing
Date.
Following consummation of the transactions contemplated herein, the
KFC Coop will no longer provide any services to Taco Bell Operators and will
discontinue its patronage dividend program for Taco Bell Operators. Although
Non-Tendering Members will retain their KFC Coop Membership Stock and KFC Coop
Store Stock, they will otherwise not enjoy any of the benefits of being a Member
of the KFC Coop, such as participation in a purchasing program.
OPERATING AGREEMENT
Parties. The parties to the Operating Agreement, substantially in the
form attached as Appendix B to this Proxy Statement, are the KFC Coop, the Taco
Bell Coop and the Pizza Hut Coop (the "Unified Coop Members"), as the initial
members of the Unified Coop. Tricon is a recognized third party beneficiary of
the Operating Agreement.
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Purpose. The Operating Agreement describes the business of the Unified
Coop. The Unified Coop will combine the purchasing volume for Goods and
Equipment within and across Tricon's KFC, Taco Bell and Pizza Hut concepts in
order to achieve the lowest possible store delivered costs for Operators. The
Unified Coop will manage and operate purchasing programs for each of the Concept
Coops consistent with the terms of management agreements between the Unified
Coop and each Concept Coop ("Management Agreements"). (See "Purchasing Program
Management Agreement" below.) The Unified Coop will attempt to negotiate the
lowest possible sustainable prices for Goods and Equipment from suppliers
approved by Tricon for sale either through the Unified Coop or directly by the
supplier to approved distributors selected by the Unified Coop Members and the
Operators represented by the Unified Coop Members. The Unified Coop will also
assist the Unified Coop Members and Operators in negotiating and monitoring
freight and distribution arrangements. The Unified Coop will provide other
services for Unified Coop Members and Operators provided for in the Management
Agreements.
Operations. As may be more specifically provided in the Management
Agreements, (a) the operation of the purchasing program of each Unified Coop
Member will be conducted by the Unified Coop consistent with annual business
plans and budgets approved by the Unified Coop and the Unified Coop Member, (b)
each Unified Coop Member will be responsible for making available to the Unified
Coop, pursuant to its loan agreements and Management Agreements, the capital and
working capital necessary for conducting the purchasing program for the Unified
Coop Member in a financially sound manner, and (c) each Unified Coop Member will
indemnify and hold harmless the Unified Coop and each other Unified Coop Member
for any operating or other losses or liabilities associated with the purchasing
and other programs of the Unified Coop Member. Nothing in the Operating
Agreement inhibits or prevents Unified Coop Members from competing with other
Unified Coop Members or their affiliates in any line of commerce or any
particular market. Neither a Unified Coop Member nor the Unified Coop has any
authority to hold itself out as a general agent of the Unified Coop in any other
business or activity.
Director Liability. The Operating Agreement provides that each
director and officer of the Unified Coop has a fiduciary duty of good faith,
loyalty and fair dealing towards the Unified Coop and the Unified Coop Members.
To discharge his or her duties in this fashion, a director must make inquiry
into the business and affairs of the company, or into a particular action to be
taken or decision to be made, with the care an ordinary prudent person in a like
position would exercise under similar circumstances.
The Operating Agreement eliminates the personal liability of directors
to the Unified Coop and the Unified Coop Members for monetary damages for breach
of his or her duties as a director. However, this does not eliminate or limit
the liability of directors for: (a) any transaction in which the director's
personal financial interest is in conflict with the financial interest of the
Unified Coop or the Unified Coop Members; (b) acts or omissions not in good
faith or which involve intentional misconduct or are known to the director to be
a violation of law; (c) any vote for or assent to an unlawful distribution to
Unified Coop Members which is prohibited by Kentucky law; and (d) any
transaction from which the director derived an improper personal benefit.
Distributions to Members. The Unified Coop's Net Cash Flow (defined
generally to mean revenues minus expenses and reserves) will be retained by the
Unified Coop for reinvestment in the Unified Coop's business, except that Net
Cash Flow will be distributed annually in an amount equal to the federal and
state income taxes due with respect to the Unified Coop's profits for a given
year, assuming that the Unified Coop's profits are taxed at the highest
applicable marginal rates. The Unified Coop may also determine to distribute
additional Net Cash Flow over and above the amount necessary to cover the
Concept Coops' taxes. The Unified Coop's Net Cash Flow arising out of the
profits of the Unified Coop in a given taxable year will be distributed among
the Concept Coops in accordance with their relative annual patronage for such
year. Any distributions of Net Cash Flow in a given tax year in excess of that
amount will be distributed among the Concept Coops in accordance with their
relative Capital Account balances (calculated by excluding each Concept Coop's
Capital Contributions to the Unified Coop). Notwithstanding any other provision
of the Operating Agreement, no member of a Concept Coop will be entitled to
patronage dividends from the Unified Coop. Members of a Concept Coop are
entitled to patronage
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dividends only as provided by the certificate of incorporation and bylaws (the
"Charter Documents") of their Concept Coop.
Tax Allocations. The Unified Coop's profits and losses will generally
be allocated annually for tax purposes among the Unified Coop Members in
accordance with their relative annual Patronage for each respective year.
Patronage is defined in the Operating Agreement to mean the amount of direct and
indirect transactions between the Unified Coop and the three Concept Coops and
Operators which qualify as patronage in the Charter Documents of each Concept
Coop.
Separate Capital Accounts. Each Concept Coop will have a Capital
Account balance, representing that Coop's property interest in the Unified Coop.
The Capital Account will initially be credited with the fair market value of the
assets contributed to the Unified Coop by the Concept Coop, plus that Concept
Coop's share of the Unified Coop's liabilities, minus the amount of the Concept
Coop's liabilities assumed by the Unified Coop. A Concept Coop's Capital Account
balance will increase by an amount equal to any profits allocated to the Concept
Coop and decreased by allocations of losses and distributions of Net Cash Flow.
Increases or decreases in a Concept Coop's share of the Unified Coop's
liabilities will also increase or decrease the Concept Coop's Capital Account
balance. Except as expressly provided in the Operating Agreement, no Unified
Coop Member will be entitled to withdraw any part of such Unified Coop Member's
Capital Contributions or Capital Account, or to receive any distribution from
the Unified Coop.
Additional Members. The Unified Coop may admit additional members from
time to time at the election of the Unified Coop Board of Directors (the
"Unified Board"), upon the terms and conditions determined by the Unified Board.
A prerequisite to admission to membership in the Unified Coop will be the
written agreement by the additional member to be bound by the terms of the
Operating Agreement.
The Unified Coop Board of Directors. The business and affairs of the
Unified Coop will be managed by the Unified Board. The Unified Board will
constitute the "manager" of the Unified Coop.
The number of directors will be eight. Unless otherwise provided in
each Concept Coop's bylaws, the Unified Board will consist of the Chairperson of
the Board of each of the Concept Coops plus one additional representative
selected by each of the Concept Coops plus two representatives selected by
Tricon. Directors will be appointed annually by each of the Unified Coop Members
and Tricon. No director of the Unified Coop appointed by a Concept Coop member
may be affiliated with Tricon in any manner other than as a KFC, Taco Bell or
Pizza Hut franchisee. Each member of the Unified Board must also be a voting
member of the Board of Directors of a Concept Coop.
A quorum of the Unified Board will consist of five-eighths (5/8) of
the directors in office immediately before the meeting begins, including one
director appointed by each of the Concept
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Coops. If a quorum is present when a vote is taken, then the affirmative vote of
five-eighths (5/8) of the votes possessed by the members of the entire Unified
Board will be the act of the Unified Board provided such majority includes: (i)
with respect to all matters the vote of at least one director appointed by each
Concept Coop and (ii) with respect to "Tricon Matters" the vote of at least one
director appointed by Tricon. "Tricon Matters" means either (i) the selection of
the Unified Coop's first non-interim President/Chief Executive Officer, (ii) the
admission of new members to the Unified Coop, (iii) the location of the
headquarters of the Unified Coop, (iv) any amendment to the Operating Agreement
or to the Articles of Organization of the Unified Coop, or (v) the conduct by
the Unified Coop of a purchasing program for a restaurant concept not owned or
franchised by Tricon; provided, however, that the Unified Coop may assist the
KFC Coop in winding up and discontinuing such programs currently conducted by
the KFC Coop.
Withdrawal. Until December 31, 2003 (the "Withdrawal Date"), no
Unified Coop Member shall withdraw from the Unified Coop for any reason. A
Unified Coop Member may withdraw at any time after the Withdrawal Date by giving
the Unified Coop 365 days advance written notice of such Unified Coop Member's
withdrawal from the Unified Coop. The redemption price payable by the Unified
Coop for the Unified Coop Member's interest will be the "Contract Price." The
Contract Price equals the balance of the withdrawing Unified Coop Member's
Capital Account as of the end of the month immediately preceding the removal or
withdrawal of a Unified Coop Member, provided that such Capital Account will be
appropriately adjusted for any distribution by the Unified Coop which is not
reflected in such Capital Account as of the close of such month. The Unified
Coop will not be required to redeem a withdrawing Unified Coop Member's interest
if the remaining Unified Coop Members elect to dissolve the Unified Coop.
Indemnification. Under Kentucky law, a limited liability company has
powers of indemnification. A member or manager may be indemnified for judgments,
penalties, fines, settlements, and expenses incurred by that person in
proceedings in connection with the person's official capacity in the limited
liability company. The operating agreement of a limited liability company may
also eliminate or limit the personal liability of a member or manager for
monetary damages for breach of his or her duty of good faith, fair dealing, and
loyalty. The Operating Agreement requires the Unified Coop to indemnify its
officers, directors and members with respect to all threatened, pending or
completed actions, suits or proceedings in which that person was, is, or is
threatened to be made a named defendant or respondent because he or she is or
was a director, officer or member of the Unified Coop, so long as the
proceedings arise from that person's conduct in his or her official capacity
with the Unified Coop.
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ASSET CONTRIBUTION AND LIABILITY ASSUMPTION AGREEMENT
Parties. The parties to the Asset Contribution and Liability
Assumption Agreement, substantially in the form attached as Appendix C to this
Proxy Statement, are the Unified Coop and the KFC Coop.
Purpose. The Operating Agreement requires, among other things, that the
KFC Coop make certain capital contributions to the Unified Coop in exchange for
its membership interest therein. In satisfaction of that obligation, pursuant to
the Asset Contribution and Liability Assumption Agreement, the KFC Coop will
assign, transfer, deliver, and generally set over to the Unified Coop, and the
Unified Coop agrees to accept and assume, certain "Assets," which means certain
of its Contracts, Leases, Equipment, Prepaid Assets, and Kenco Stock (other than
any of the same which are Taco Bell Coop Assets), as defined in the Asset
Contribution and Liability Assumption Agreement. The Assets will not include any
other assets of the KFC Coop, including, without limitation, any accounts
receivable, cash or cash equivalents, goodwill, or the capital stock of any
subsidiary of the KFC Coop other than Kenco Insurance Agency, Inc. ("Kenco"). In
return, the Unified Coop will assume and agree to perform and discharge in full
any and all of the KFC Coop's obligations and liabilities under its Contracts
and Leases. Furthermore, in exchange for its contribution of the Assets to the
Unified Coop, the KFC Coop will receive credit to its Capital Account in an
amount equal to the value of the Assets on the balance sheet of the KFC Coop
prepared as of the Closing Date in accordance with generally accepted accounting
principles and as further defined in the Operating Agreement up to a maximum of
$950,000. If the value of the Assets exceeds $950,000, the Unified Coop will
return the excess value in cash to the KFC Coop.
KFC Coop Employees. The Unified Coop will make offers of employment to
all of the current employees of the KFC Coop on terms and conditions
substantially similar in the aggregate to those currently in effect between the
KFC Coop and its employees, except for Mr. Henrion, as discussed below. To
facilitate this, the KFC Coop will either layoff or terminate all of its
employees as of the Closing Date. The Unified Coop will not otherwise purchase,
recognize, assume or otherwise acquire any rights, obligations, assets or
liabilities under, arising from, or resulting from any employment agreement in
existence between the KFC Coop and any employee, or any person employed to
consult with or perform services for, the KFC Coop. The Unified Coop Board has
engaged William M. Mercer, Inc. to assist the Unified Coop in establishing human
resources
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policies and benefit plans for the Unified Coop, as well as to assist in the
integration of KFC Coop and SCM personnel.
The KFC Coop, the Unified Coop, and Thomas D. Henrion, President of the
KFC Coop, have executed a Separation and Consulting Agreement (the "Separation
and Consulting Agreement"). The Separation and Consulting Agreement provides for
Mr. Henrion to resign his employment on the Closing Date and, thereafter, to
provide consulting services for two years. Mr. Henrion also agrees to
non-compete provisions whereby, for two years following the date of the
Separation and Consulting Agreement, Mr. Henrion will not work for specifically
scheduled companies that are specifically listed in the Separation and
Consulting Agreement. Under the Separation and Consulting Agreement, Mr. Henrion
will be paid $500,000 upon consummation of the Corporate Reorganization and
$456,300 on the first business day of January 2000 along with health insurance
coverage for 10 years. The Separation and Consulting Agreement replaces the
Supplemental Benefits/Consulting Agreement (the "Supplemental Agreement")
between Mr. Henrion and the KFC Coop.
Under the Supplemental Agreement, upon Mr. Henrion's retirement or
termination, he would receive (i) monthly compensation equal to one-twelfth of
18% of his annual base compensation averaged over a three-year period (his
"Average Annual Compensation") for the number of months Mr. Henrion had worked
for the KFC Coop since January 1, 1994 and (ii) for one year following the
expiration of the above compensation, monthly payments equal to one-twelfth of
his Average Annual Compensation. As of the end of fiscal 1998, Mr. Henrion's
Average Annual Compensation was approximately $209,000. As of January 1, 1999,
Mr. Henrion would have been entitled to aggregate payments of approximately
$397,000 under the Supplemental Agreement. The Supplemental Agreement also
provided that if Mr. Henrion chose to consult with the KFC Coop following his
departure, in lieu of monthly retirement benefits discussed in (i) above, he
would receive monthly compensation equal to one-twelfth of 30% of his Average
Annual Compensation for so long as he provided consulting services to the KFC
Coop, but for no longer than the number of months he was actually employed after
January 1, 1994 (aggregate value of approximately $538,175). Finally, the
Supplemental Agreement provided Mr. Henrion with one-half ownership of a whole
life split-dollar insurance policy in an initial face amount of $147,384, a car
allowance and health insurance while he consulted.
Representations and Warranties. The Asset Contribution and Liability
Assumption Agreement contains representations and warranties by the KFC Coop to
the Unified Coop, among other things, that: (i) the KFC Coop is duly organized,
validly existing and in good standing and has all necessary corporate power and
authority to conduct the business of a purchasing cooperative and to execute,
deliver and perform its obligations under the agreement; (ii) the agreement
complies with the certificate of incorporation and bylaws of the KFC Coop and
Kenco, and any judgement, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority applicable to the KFC Coop or
Kenco; (iii) the KFC Coop has good and marketable title to the Assets free and
clear of all liens, pledges, encumbrances, security interests, claims, charges,
options and restrictions; (iv) the KFC Coop has performed all material
obligations required to be performed by it under its Contracts and Leases, and
the KFC Coop does not know of any other party that is in material default (or
would be in default on the giving of notice or the lapse of time or both) under
its Contracts or Leases; (v) there are no claims of any kind or any actions,
suits, proceedings, arbitrations or investigations pending or, to the knowledge
of the KFC Coop, threatened in any court or before any governmental agency or
instrumentality or arbitration panel or otherwise against, by or affecting the
KFC Coop, or the KFC Coop's business or any of the Assets, in each case, which
would have a material adverse effect on the business, except as specifically
provided therein; (vi) the KFC Coop nor Kenco is not a party to, or negotiating,
and has no obligations under, any agreement, collective bargaining or otherwise,
with any party relating to the compensation or working conditions of any of the
KFC Coop's or Kenco's employees, nor knows of any threatened labor disputes
which might have a material adverse effect on the Assets; (vii) the employee
benefit plans and policies maintained by the KFC Coop have been executed,
managed and administered in material compliance with all applicable laws and the
KFC Coop has no knowledge of any fact which would adversely affect the qualified
status of any of the employee benefit plans; (viii) the KFC Coop is in material
compliance with all environmental, health and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder; (ix) Kenco is duly
organized, validly existing and in good standing and has all necessary corporate
power and authority to own, lease and operate its properties as such properties
are now owned, leased and operated, and to conduct its business as and where its
business is now conducted; (x) Kenco is qualified to do business and is in good
standing in all jurisdictions in which the character of the properties owned or
leased by it or the nature of the activities conducted by it, makes such
qualification necessary; and (xi) to the knowledge of the KFC Coop, (i) Kenco
has good and marketable title to tall of the assets reflected on the Kenco
Balance Sheet, as defined, free and clear of any claims, liens, charges,
mortgages, security interests or encumbrances whatsoever except for those
reflected in the Kenco Balance Sheet and (ii) Kenco has no liabilities other
than those reflected on the Kenco Balance Sheet.
The Asset Contribution and Liability Assumption Agreement also
contains representations and warranties by the Unified Coop to the KFC Coop,
among other things, that the Unified Coop is duly organized, validly existing
and in good standing and has all necessary corporate power and authority
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to conduct the business of a purchasing cooperative and to execute, deliver and
perform its obligations under the Asset Contribution and Liability Assumption
Agreement.
Covenants of the KFC Coop. To the extent that the assignment of any of
the Leases or Contracts or the transfer of any of the other Assets requires the
consent of a third party, the Asset Contribution and Liability Assumption
Agreement will not constitute an agreement to assign the same if an attempted
assignment thereof, without the consent of the third party thereto, would
constitute a breach thereof, but the KFC Coop will use its commercially
reasonable efforts to obtain all such consents. If any such consent is not
obtained or is obtainable only upon payment by the Unified Coop of amounts not
otherwise required to be paid under the terms of such Contract or Lease, the KFC
Coop will cooperate with the Unified Coop in any reasonable arrangement, which
does not impose any additional expense on the Unified Coop, which is designed to
provide for the Unified Coop the benefits under any such Contract or Lease,
including enforcement for the benefit of the Unified Coop, at the expense of the
KFC Coop, of any and all rights of the KFC Coop against any third party thereto
arising out of the failure or refusal of such third party to consent to such
assignment.
Indemnification. The KFC Coop is obligated to indemnify and hold
harmless the Unified Coop for any liabilities that may arise as a result of,
among other things, any inaccuracy in any representation or warranty or any
breach of any covenant by the KFC Coop contained in the Asset Contribution and
Liability Assumption Agreement.
The Unified Coop similarly is obligated to indemnify and hold harmless
the KFC Coop for any liabilities that may arise as a result of, among other
things, any inaccuracy in any representation or warranty or any breach of any
covenant by the Unified Coop contained in the Asset Contribution and Liability
Assumption Agreement.
Federal Income Tax Consequences. Under the Asset Contribution and
Liability Assumption Agreement, the KFC Coop will contribute certain assets and
liabilities to the Unified Coop and receive in exchange a membership interest
in the Unified Coop. The Unified Coop is a Kentucky limited liability company
that will be treated as a partnership for federal income tax purposes. Under
Sections 721 and 752 of the Code, the contribution of assets and liabilities by
the KFC Coop to the Unified Coop will be tax-free to the KFC Coop and the
Unified Coop, so long as the aggregate amount of the liabilities assumed by the
Unified Coop from the KFC Coop does not exceed the aggregate of the KFC Coop's
share of the Unified Coop's liabilities and the basis of the assets contributed
by the KFC Coop.
PURCHASING PROGRAM MANAGEMENT AGREEMENT
Parties and Term. A Purchasing Program Management Agreement,
substantially in the form attached as Appendix D to this Proxy Statement, will
be entered into between the Unified Coop and each Concept Coop. The initial term
of each Purchasing Program Management Agreement extends through December 31,
2003, the Withdrawal Date. A Purchasing Program Management may be terminated on
the Withdrawal Date or any December 31 thereafter upon one year's notice of
termination.
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Purpose. The Purchasing Program Management Agreement sets forth the
terms pursuant to which the Unified Coop will establish and administer a
purchasing program on behalf of each Concept Coop.
The management services to be provided by the Unified Coop will include
negotiating the lowest possible sustainable prices for Goods and Equipment from
suppliers approved by Tricon for sale through the Unified Coop or directly by
the supplier to Tricon-approved distributors selected by the Unified Coop
Members and the Operators represented by Members; assisting the Unified Coop
Members and Operators in negotiating and monitoring freight and distribution
arrangements; administering related insurance and other service programs; and
negotiating arrangements such as master beverage agreements and regional poultry
contracts. To provide these services, the Concept Coops agree that the Unified
Coop purchasing program must be appropriately capitalized, financially
self-sustaining, and operated on a cooperative basis
Operation of the Purchasing Program. The Unified Coop will (i)
purchase, inventory and stage and/or arrange for the purchase, inventory and
staging of Goods and Equipment for sale or resale to Operators and/or their
distributors, (ii) negotiate purchase arrangements with suppliers of Goods and
Equipment who sell directly to distributors and/or Operators, (iii) assist the
Concept Coops in negotiating with distributors of Goods and Equipment, (iv)
monitor distributor performance, (v) work with regional purchasing groups of
Operators, and (vi) make available to the Concept Coops and Operators other
programs such as health and property insurance programs.
Commitment of the Concept Coops. The Concept Coops will advise, counsel
with and assist the Unified Coop with respect to the establishment and operation
of the purchasing programs, including, but not limited to (i) advising the
Unified Coop in connection with the designation of Goods and Equipment to be
purchased and sold through the Unified Coop; (ii) advising the Unified Coop with
respect to appropriate suppliers; (iii) assisting the Unified Coop in obtaining
approvals or consents, if required, from Tricon for the Unified Coop designated
suppliers or distributors to implement and participate in the purchasing
programs with respect to trademark or proprietary items; (iv) providing the
Unified Coop with budgets and providing for financially sustainable programs;
(v) providing sufficient capital and loans to the Unified Coop consistent with
the provisions of the Operating Agreement to sustain the purchasing programs;
(vi) providing input to the Unified Coop on service levels and programs in which
the Concept Coops and their members desire to participate; (vii) developing the
Concept Coops' patronage dividend policies; (viii) establishing policies with
respect to sales to non-Concept Coop members; and (ix) assisting the Unified
Coop in such other ways as the Unified Coop may reasonably request.
Margins and Distributor Fees. The Purchasing Program Management
Agreement sets forth limitations on Margins and Distributor Fees, as defined, on
Goods and Equipment sold to Operators directly or through distributors. The
Unified Coop will establish the lowest possible Margins on Title Transactions
and the lowest possible fees on Contract Transactions necessary to sustain its
purchasing program, while maintaining prudent working capital reserves and
providing a sound operational basis for its purchasing program.
Return of Income to Concept Coops. Within 60 days after the end of each
fiscal quarter, the Unified Coop will pay each Concept Coop an amount equal to
70% of the income generated by the Unified Coop from each respective purchasing
program, net of all expenses allocable to the purchasing program for such
quarter. Within 60 days of the end of each fiscal year, the Unified Coop will
pay each Concept Coop an amount equal to 90% of any net income generated by its
purchasing program, less any quarterly payments described above. If a purchasing
program generates a net loss for a fiscal quarter or fiscal year, the Concept
Coop will reimburse the Unified Coop for any and all of such net loss.
Trademark Licenses. The Concept Coops will grant to the Unified Coop
royalty-free rights and licenses to use the Concept Coops' trade names and
trademarks, if used solely in connection with the purchasing programs.
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Indemnification. The Unified Coop will indemnify and hold harmless the
Concept Coops, and the Concept Coops will indemnify and hold harmless the
Unified Coop, against any and all expenses, costs, claims, demands, causes of
action and resulting settlements, awards, judgments, losses, deficiencies,
liabilities and damages (including reasonable counsel and accountants' fees and
expenses) incurred or suffered by either party as a result of (i) the unlawful,
negligent or otherwise wrongful acts or omissions of the other party or any of
its employees or agents in connection with the party's performance under the
Purchasing Program Management Agreement, or (ii) a party's breach of any
representation, covenant, term or provision of the Purchasing Program Management
Agreement. A party's entitlement to indemnification will extend to such party's
officers, directors, employees, legal counsel, accountants, and other agents and
representatives.
Representations and Warranties. The Unified Coop represents and
warrants to the Concept Coops, and the Concept Coops represent and warrant to
the Unified Coop, that: (i) each has full right, power and authority to enter
into the Purchasing Program Management Agreement and perform its obligations
hereunder; (ii) the execution and delivery of the Purchasing Program Management
Agreement, the consummation of the transactions contemplated thereby, and the
performance and fulfillment of its obligations and undertakings thereunder will
not violate any provision of, or result in the breach of (a) any applicable law,
ordinance, rule or regulation of any governmental body, (b) the Charter
Documents of either party, (c) any agreement or undertaking to which, to its
knowledge, without due inquiry, either party is a party or by which it may be
bound, or (d) any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority applicable to either party;
and (iii) the execution and delivery of, and the performance and consummation of
the transactions contemplated by, the Purchasing Program Management Agreement
have been duly authorized by all requisite actions of the parties.
Federal Income Tax Consequences of Patronage Income. Under the
Purchasing Program Management Agreements, income generated through the
management services provided by the Unified Coop will be retained in part as
consideration for the Unified Coop's services, with the balance paid to each
Concept Coop. The KFC Coop believes, based on applicable authorities, that
payments by the Unified Coop to a Concept Coop under the applicable Purchasing
Program Management Agreement will qualify for patronage dividend
characterization under Section 1381 through 1388 of the Code, so long as such
amounts not retained by the Concept Coop for capital
23
<PAGE> 31
and reserves are distributed to the Concept Coop's shareholders in accordance
with the Charter Documents of each Concept Coop. The KFC Coop, however, has not
and does not intend to apply for a ruling from the Internal Revenue Service with
respect to the characterization of the payments for federal income tax purposes.
If the Internal Revenue Service challenged the characterization of the payments
and was successful, then the Concept Coop would be liable for taxes and interest
for any amounts disallowed as exclusions from its taxable income.
THE TRICON AGREEMENTS
The Unified Coop and Tricon will enter into the Tricon Purchasing Coop
Agreement (the "Tricon Purchasing Coop Agreement") and the SCM Transfer
Agreement (the "SCM Transfer Agreement"), both dated as of the Closing Date
(collectively, the "Tricon Agreements"). The Tricon Purchasing Coop Agreement
sets forth Tricon's commitment to the purchasing programs of the Unified Coop
and the Concept Coops, Tricon's supplier and distributor processes, aspects of
the relationships between Tricon and suppliers and distributors, and
coordination of the Unified Coop's purchasing activities with the marketing,
promotion, and other programs and projects of Tricon. The SCM Transfer Agreement
sets forth provisions concerning the Unified Coop employment of Tricon SCM
personnel and the assumption by the Unified Coop of certain SCM purchasing
arrangements for Goods and Equipment.
Tricon will designate the Unified Coop as the exclusive administrator
of purchasing programs, operated on behalf of the Concept Coops, for all Tricon
owned and operated Retail Outlets. Tricon is also contributing $400,000 to the
Unified Coop to assist the Unified Coop with specific expenses incurred in its
organization and in establishing its purchasing programs. Tricon is expected to
become and remain a member of each Concept Coop, in accordance with the policies
and requirements of each Concept Coop.
Pursuant to the terms of the Tricon Agreements, Tricon agrees to
purchase through the Unified Coop "virtually all" of the Goods and Equipment
needed for the Tricon operated Retail Outlets. As used in this Proxy Statement,
the commitment to purchase "virtually all" of the Goods and Equipment needed
for a Retail Outlet means all Goods and Equipment except Goods and Equipment:
(i) where the Unified Coop agrees in advance that a particular item need not be
purchased through the Unified Coop; (ii) where the Unified Coop is unable to
meet the needed volume or required quality standards for a particular item;
(iii) where purchasing a certain product through the Unified Coop would present
a material business risk to the purchaser; (iv) where Tricon has a specific
purchase commitment it is unable to assign to the Unified Coop; (v) where
Tricon would be in violation of a law; or (vi) when an Operator no longer is a
member of a Concept Coop or when the Tricon Agreements have been properly
terminated.
Tricon also agrees to transfer to the Unified Coop, and the Unified
Coop agrees to assume, certain of Tricon's contracts and commitments involving
the purchase or sale of Goods and Equipment. The Unified Coop will also make
offers of employment to all of the current employees of Tricon who are engaged
primarily in the purchase or sale of Goods and Equipment for use or consumption
by Operators.
Tricon will have the exclusive right and obligation with respect to
the purchase and distribution of Goods and Equipment including, without
limitation, to (i) designate and terminate approved suppliers and approved
distributors, with significant franchisee involvement, (ii) designate approved
Goods and Equipment, and (iii) develop, designate, modify and update
specifications for Goods and Equipment.
Tricon will also abide by the terms of the "Sheltered Income"
provisions of the Tricon Purchasing Coop Agreement which provide that neither
Tricon nor the Unified Coop will receive or benefit from any Sheltered Income in
connection with Goods or Equipment purchased or used by Retail Outlets, nor
shall either authorize any approved supplier, approved distributor, or Concept
Coop to receive or benefit from Sheltered Income, subject to the few exceptions
listed in the Tricon
24
<PAGE> 32
Purchasing Coop Agreement. The Tricon Purchasing Coop Agreement does not
limit or prohibit the right of the Unified Coop or any Concept Coop to benefit
from any Sheltered Income, provided that the Unified Coop shares, and causes
each Concept Coop to share, such Sheltered Income among each applicable Operator
(including Tricon) based on the dollar volume of the purchases of such Operator
that gave rise to the receipt or benefit of such Sheltered Income.
AMENDMENTS TO THE KFC COOP'S BYLAWS
The KFC Coop Board has made two substantive changes to the KFC Coop
Bylaws, substantially in the form attached as Appendix E to this Proxy
Statement, conditioned on the approval of the Corporate Reorganization. The KFC
Coop Board also retains the right under Article IX of its Certificate of
Incorporation to make, adopt, amend or repeal the KFC Coop Bylaws, subject to
the right of Members to adopt, amend or repeal the KFC Coop Bylaws.
Patronage Dividend Program. The KFC Coop Board has updated the
provisions of the KFC Coop Bylaws governing the patronage dividend program to
conform its operations with those of the Unified Coop and the other Concept
Coops, pursuant to the Operating Agreement. After the Unified Coop makes tax
distributions to the Unified Coop Members, the Unified Coop may distribute
additional Net Cash Flow to the Unified Coop Members in accordance with the sum
of their Capital Accounts less the amount of each Unified Coop Member's Capital
Contribution. No Unified Coop Member is entitled to patronage, but rather may
pass such distributions on to the Concept Coop members in accordance with the
provisions of their respective patronage dividend programs. This patronage
dividend program contemplates separate patronage pools for each Unified Coop
Member's Title Transactions and Contract Transactions.
The Operating Agreement prohibits Unified Coop Members from altering
their patronage dividend programs without the consent of the Unified Coop
Board.
Changes to Reflect Taco Bell Spinoff. The KFC Coop Board has amended
the KFC Coop Bylaws to reflect the division of its business, conditioned on the
approval of the Agreement and Plan of Corporate Separation. These changes
include a provision which causes any Taco Bell Members who do not tender their
shares of KFC Coop stock in the Tender Offer to only be eligible to hold Series
N KFC Coop Membership Stock. If any Members of Series N remain, they will be
entitled to elect one member of the KFC Coop Board. Other administrative
amendments to the KFC Coop Bylaws are planned to reflect the Taco Bell
split-off.
CANADIAN OPERATIONS
Canada Subsidiary. The KFC Coop currently operates its purchasing
program for KFC Operators in Canada through a wholly owned subsidiary, KFC
Franchisee Purchasing of Canada, Inc. (the "Canada Subsidiary"). For fiscal year
1997, the Canada Subsidiary had net sales of $50,938,845 and a net income of
$61,825 (all dollar amounts in this section are in U.S. dollars); this
represented 8.4% of the net sales and 8.2% of the net income of the KFC Coop. As
of July 31, 1998, the Canada Subsidiary had year-to-date net sales of
$34,435,071 and year-to-date net income of $1,375; this represents 7.3% of the
net sales and 0.5% of the net income of the KFC Coop. (The foregoing net sales
and net income figures are based on the KFC Coop's unaudited financial
statements for the Canada Subsidiary.) As of January 4, 1999, of the 688 shares
of KFC Coop Membership Stock outstanding, Operators in Canada who hold Series M
shares own 49 shares and Scott's Restaurants Inc. ("Scott's") owns the Series I
share. Of the 6,654 shares of KFC Coop Store Stock outstanding, Operators in
Canada own 534 shares.
Canada Coop. It is anticipated that at the time of or shortly following
the Corporate Reorganization a new unified purchasing cooperative will be
organized for KFC, Taco Bell, and
25
<PAGE> 33
Pizza Hut Operators in Canada (the Canada Coop"). The Canada Coop would be a
party to the Operating Agreement for the Unified Coop, but would not be a member
of the Unified Coop. The Canada Coop would be represented on the Unified Coop
Board of Directors by a director who has no vote, except on Canada Matters, as
would be defined in the Operating Agreement. As of the date of this Proxy
Statement, there can be no assurance that a Canada Coop will be organized and
become a party to the Operating Agreement for the Unified Coop.
Unlike the Concept Coops, the Canada Coop would directly operate a
purchasing program for Goods used by Operators in Canada. The Unified Coop would
likely operate a purchasing program for Equipment used by Operators in Canada.
The Canada Coop would enter into a purchasing cooperative agreement with Tricon,
on terms similar to the Tricon Purchasing Coop Agreement, that describes
Tricon's commitment to the Canada Coop and its purchasing programs.
It is currently expected that the stockholder members of the Canada
Coop would be Operators of KFC, Taco Bell, and Pizza Hut Retail Outlets in
Canada, including Tricon, and would each own one share of Canada Coop membership
common stock and that number of shares of Canada Coop store common stock
required by its bylaws. Various options are currently being considered to
structure the transfer of ownership in the KFC Coop by its Members holding
Series M (Canada) and Series I (Scott's) KFC Coop Membership Stock, and their
KFC Coop Store Stock, to an ownership interest in the Canada Coop.
The Canada Coop Board of Directors would likely consist of eight
members; Tricon Canada and Canadian Operators of Pizza Hut Retail Outlets would
each be represented by two directors, Canadian Operators of KFC Retail Outlets
would be represented by three directors, and Canadian Operators of Taco Bell
Retail Outlets would be represented by one director.
There will be no Canadian concept coops. The KFC Coop plans to
consider amendments to its bylaws which would permit KFC Operators in Canada to
continue to be represented on the KFC Coop Board by either voting or non-voting
directors. Taco Bell and Pizza Hut Operators in Canada would be represented on
their respective Concept Coop boards of directors by one non-voting director.
Although the organization and operations of the Canada Coop are
expected to differ from those of the Unified Coop, the goals of the Canada Coop
would be consistent with those of the Unified Coop, including reducing store
delivered costs to Operators in Canada.
Scott's. Scott's is the owner and operator of 353 KFC Retail Outlets in
Canada. Scott's owns the only share of KFC Coop Membership Common Stock in
Series I and 353 shares of KFC Coop Store Common Stock. Scott's elects the
director who represents Series I on the KFC Coop Board. The KFC Coop Bylaws
provides that if Scott's, at any time, owns or operates less than 100 KFC Retail
Outlets in Canada then the share of KFC Coop Membership Stock owned by Scott's
will be exchanged for one share of KFC Coop Membership Common Stock in Series M.
26
<PAGE> 34
On October 30, 1998, Scott's announced that it had signed a definitive
agreement with Tricon to sell selected KFC Retail Outlets to the public by way
of an income trust. The agreement provides that Scott's will not be obligated to
proceed with the transaction if the net proceeds to Scott's from the public
offering are less than $160 million. The proposed sale is subject to approval by
Scott's shareholders and market conditions at the time of the offering. It is
the intention of Scott's and Tricon that the transaction be completed
irrespective of further litigation between the parties regarding Scott's
franchise agreement. The closing date for the transaction is scheduled for March
1, 1999. Once closed, Scott's and Tricon will exchange mutual releases with
respect to the litigation. If the transaction is not successfully completed,
their agreement provides that Scott's and Tricon will negotiate alternate
strategies for the disposition of Scott's KFC business.
Given the tentative nature of the Scott's-Tricon agreement, it is
unclear what effect the consummation of the transaction would have on the
Scott's, or resulting income trust's, representation on the board of directors
of both the KFC Coop and the Canada Coop and whether the KFC Coop will amend its
Charter Documents to maintain the same level of participation by Scott's or the
resulting income trust.
INTERESTS OF CERTAIN PERSONS IN THE CORPORATE REORGANIZATION
Thomas D. Henrion, President of the KFC Coop and a non-voting member of
its Board of Directors, may be deemed to have certain interests in the Corporate
Reorganization that are in addition to his interests as an officer and director.
The KFC Coop Board is aware of this interest and has considered it, among other
matters, in approving the Corporate Reorganization and the transactions
contemplated thereby.
The KFC Coop, the Unified Coop, and Thomas D. Henrion, President of the
KFC Coop, have executed a Separation and Consulting Agreement (the "Separation
and Consulting Agreement"). The Separation and Consulting Agreement provides for
Mr. Henrion to resign his employment on the Closing Date and, thereafter, to
provide consulting services for two years. Mr. Henrion also agrees to
non-compete provisions whereby, for two years following the date of the
Separation and Consulting Agreement, Mr. Henrion will not work for specifically
scheduled companies that are specifically listed in the Separation and
Consulting Agreement. Under the Separation and Consulting Agreement, Mr. Henrion
will be paid $500,000 upon consummation of the Corporate Reorganization and
$456,300 on the first business day of January 2000 along with health insurance
coverage for 10 years. The Separation and Consulting Agreement replaces the
Supplemental Benefits/Consulting Agreement (the "Supplemental Agreement")
between Mr. Henrion and the KFC Coop.
Under the Supplemental Agreement, upon Mr. Henrion's retirement or
termination, he would receive (i) monthly compensation equal to one-twelfth of
18% of his annual base compensation averaged over a three-year period (his
"Average Annual Compensation") for the number of months Mr. Henrion had worked
for the KFC Coop since January 1, 1994 and (ii) for one year following the
expiration of the above compensation, monthly payments equal to one-twelfth of
his Average Annual Compensation. As of the end of fiscal 1998, Mr. Henrion's
Average Annual Compensation was approximately $209,000. As of January 1, 1999,
Mr. Henrion would have been entitled to aggregate payments of approximately
$397,000 under the Supplemental Agreement. The Supplemental Agreement also
provided that if Mr. Henrion chose to consult with the KFC Coop following his
departure, in lieu of monthly retirement benefits discussed in (i) above, he
would receive monthly compensation equal to one-twelfth of 30% of his Average
Annual Compensation for so long as he provided consulting services to the KFC
Coop, but for no longer than the number of months he was actually employed after
January 1, 1994 (aggregate value of approximately $538,175). Finally, the
Supplemental Agreement provided Mr. Henrion with one-half ownership of a whole
life split-dollar insurance policy in an initial face amount of $147,384, a car
allowance and health insurance while he consulted.
27
<PAGE> 35
FAILURE OF THE CORPORATE REORGANIZATION PROPOSAL
If the Corporate Reorganization proposal fails to receive the required
affirmative votes of Holders of Record, the KFC Coop will not enter into the
Corporate Reorganization Agreements, but will continue to operate in a manner
and structure consistent with its operations as of the date of this Proxy
Statement. The KFC Coop would expect to continue discussions with Tricon and
franchisees to explore alternative ways of reducing store delivered costs to
Retail Outlets and achieving the other goals stated herein.
MANAGEMENT OF THE COOPERATIVE
Directors and Executive Officers
The following table lists, in addition to other information, the
directors and certain executive officers of the Cooperative as of December 31,
1998, their ages, their position with the Cooperative, their present principal
occupations, and the number and percentages of shares of Store Common Stock
beneficially owned, directly or indirectly, by each. The information provided
with respect to the ages and number of shares beneficially owned is as of
December 31, 1998.
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME KFC
CURRENTLY DIRECTOR OR TERM AS PRESENT STORE PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- -------- ------- ------- ----------- ---------- --------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Allen 59 Director, 1988 2000 F Operator 6 **
Secretary
- ----------------------------------------------------------------------------------------------------------------------------
Anthony Basile 56 Director, 1997 2001 Taco Bell at Operator 26 **
Treasurer Large
- ----------------------------------------------------------------------------------------------------------------------------
James G. Cocolin 49 Director 1996 1999 C Operator 10 **
- ----------------------------------------------------------------------------------------------------------------------------
Lois G. Foust 53 Director 1997 2001 L Operator 2 **
- ----------------------------------------------------------------------------------------------------------------------------
Edward J. Henriquez, Jr. 60 Director 1994 1999 J Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
Paul A. Houston 48 Director 1995 2000 I President of 353 5.3
Scott's
Restaurants,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Grover G. Moss 53 Director 1994 2001 O Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
David G. Neal 52 Director, 1991+ 2000 E Operator 94 1.4
Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 36
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Olson 48 Director 1997 2000 H President of 266 4.0
Harman
Management
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Ben E. Edwards 56 Director 1998++ 1999 B Operator 10 **
- ------------------------------------------------------------------------------------------------------------------------------
Darlene L. Pfeiffer 60 Director 1997 2001 L Operator 4 **
- ------------------------------------------------------------------------------------------------------------------------------
Edward W. Rhawn 60 Director 1992 1999 Independent Chairman of -- --
Rhawn
Enterprises,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
James B. Royster 60 Director, Vice 1998++ 2000 A Operator 4 **
Chairman
- ------------------------------------------------------------------------------------------------------------------------------
Dean M. Sorgdrager 36 Director 1996 1999 G Operator 1 **
- ------------------------------------------------------------------------------------------------------------------------------
Robert C. Carle 42 Director 1998 1999 D Operator 7 **
- ------------------------------------------------------------------------------------------------------------------------------
Ronald J. Young 39 Director 1993 2000 M Operator 14 **
- ------------------------------------------------------------------------------------------------------------------------------
David Paradise 47 Non-voting 1997 -- -- Operator 19 **
Director+++
- ------------------------------------------------------------------------------------------------------------------------------
Thomas D. Henrion 55 Director, 1980 -- -- President, -- --
President, Chief
Chief Executive
Executive Officer,
Officer Cooperative
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 37
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William V. Holden 48 Vice 1985 -- -- Vice -- --
President, President,
Chief Chief
Financial Financial
Officer Officer,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
W. Thomas Hutcherson 51 Vice 1982 -- -- Vice -- --
President, President,
Purchasing Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Kenneth L. Hartung 50 Vice President 1993 -- -- Vice -- --
President,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
John W. Inwright 41 Vice 1991 -- -- Vice -- --
President, President,
Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Alice Le Blanc 41 Vice 1998 -- -- Vice -- --
President, President,
KFC Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Carol L. Mudd 43 Vice 1997 -- -- Vice -- --
President, President,
Human Cooperative
Resources
- -----------------------------------------------------------------------------------------------------------------------------
All directors and officers as a group (23 persons) ++++ 830 12.5
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* KFC Management has purchased one share of Series K Membership Common
Stock. In 1989, both directors representing KFC Management resigned as
members of the Board of Directors. KFC Management has not taken any
action to fill the vacancies. The total number of shares of Store
Common Stock listed as owned by directors and officers does not include
the 2,028 shares of Store Common Stock believed by the Cooperative to
be owned by KFC Management or affiliates, representing approximately
33.0% of the Store Common Stock outstanding.
** Less than one-half of one percent.
30
<PAGE> 38
+ Mr. Neal has previously served on the Board of Directors of the
Cooperative as one of the two directors representing the National
Franchise Advisory Council, the former holder of the Series L share of
Membership Common Stock. He first began serving on the Board of
Directors as a representative of Series E in February 1991.
++ Previously served as a director appointed by the National Franchisee
Advisory Council.
+++ Mr. Paradise is a Taco Bell Operator chosen to serve at the pleasure of
the Board of Directors as a non-voting member of the Board of Directors
after consultation with the Taco Bell Operators serving as directors
and FRANMAC.
++++ Each director, other than Messrs. Henrion and Rhawn, is, or is
affiliated with a member which is, the owner of one share of Membership
Common Stock; All directors and officers as a group (23 persons) own 16
shares of Membership Common Stock, 2.3 percent of the total number of
Shares of Membership Common Stock outstanding. The Store Common Stock
ownership reflects the number of shares which each director, other than
Messrs. Henrion and Rhawn, owns or which is owned by the member with
which the director is affiliated. Except as required by law, Store
Common Stock has no voting rights. Messrs. Henrion and Rhawn are
neither the owners, nor affiliates of the owners, of any Membership or
Store Common Stock.
31
<PAGE> 39
TACO BELL COOP
The initial members of the Taco Bell Coop Board are:
<TABLE>
<S> <C>
Anthony Basile Thomas M. Cook
Chicago Diversified Foods, Corp. Chairman
400 E. 22nd Street, Suite E Cardinal Restaurants, Inc.
Lombard, IL 60148 1700 Washington Street
Vancouver, WA 98660
Max Craig* Karl James
Chief Financial Officer Golden West Taco, Inc.
Taco Bell Corp. PO Box 8450
17901 Van Karman Rancho Santa Fe, CA 92067
Irvine, CA 92714-6212
George Kentris Grover Moss
K&K Restaurants, Inc. E.T. Tacos, Inc.
431 E. Main Cross Street 1426 University Avenue
Findlay, OH 45840 Riverside, CA 92507
David Paradise Mary Wagner*
Paradise Foods Sr. Vice President of Technology & Quality
P.O. Box 1124 Taco Bell Corp.
Natchez, MS 39121 17901 Van Karman
Irvine, CA 92714-6212
</TABLE>
*Tricon representative
32
<PAGE> 40
UNIFIED COOP
The initial members of the Unified Board are:
<TABLE>
<S> <C>
Christian L. Campbell* Thomas M. Cook***
Sr. Vice President and General Counsel Chairman
Tricon Global Restaurants, Inc. Cardinal Restaurants, Inc.
1441 Gardiner Lane 1700 Washington Street
Louisville, KY 40213 Vancouver, WA 98660
David G. Neal** Robert Lowes*
JRN, Inc. Chief Financial Officer
201 West 7th Street Tricon Global Restaurants, Inc.
Columbia, TN 38401 1441 Gardiner Lane
Louisville, KY 40213
David E. Paradise*** Burney Royster**
Paradise Foods Royster Enterprises, Inc.
417 Main Street 1110 W. Michigan
Natchez, MS 39121 Jackson, MI 49204
Jim Schwartz**** Ken Wagnon****
President/Chief Operating Officer Capital Enterprises, Inc.
NPC International 3445 North Webb Rd.
14400 College Boulevard - Suite 201 Wichita, KS 67226
Lenexa, KS 66215
</TABLE>
* Tricon representative
** KFC Coop representative
*** Taco Bell Coop representative
**** Pizza Hut Coop representative
MARKET AND PRICE FOR THE KFC COOP AND TACO BELL COOP STOCK
No class of the KFC Coop's or Taco Bell Coop's capital stock is or
will be listed on an exchange or traded in any other public trading market. All
KFC Coop stock and Taco Bell Coop stock is and will be issued only to
Operators. The KFC Coop Members purchase KFC Coop Membership Stock and KFC Coop
Store Stock to participate in the KFC Coop's programs for its members,
including the patronage dividend program and the KFC Coop purchasing programs,
and to participate in the KFC Coop's management through the election of
directors. The KFC Coop Members do not purchase KFC Coop stock with any
expectation of return on their investment through stock appreciation or per
share dividends. Tendering Members and other prospective Taco Bell Coop
shareholder members should also not expect a return on their investment in Taco
Bell
33
<PAGE> 41
Coop stock through stock appreciation or per share dividends, but should
purchase Taco Bell Coop stock to participate in the Taco Bell Coop's programs
for members.
Since July 1, 1983, the KFC Coop has offered shares of KFC Coop
Membership Stock at $10 per share and shares of KFC Coop Store Stock at $400 per
share. Taco Bell Coop Membership Stock will be initially priced at $10 per share
and Taco Bell Coop Store Stock will be initially priced at $400 per share.
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
Description Series Represented Membership Stock Store Stock
----------- ------------------ ---------------- -----------
<S> <C> <C> <C>
KFC Members A - H, K, L 533 5,131
Taco Bell Members O and P 94 759
Canada Members M and I 49 534
International Members J 12 230
--- -----
Total 688 6,654
</TABLE>
DESCRIPTION OF KFC COOP CAPITAL STOCK
INTRODUCTION
Membership in the KFC Coop is currently limited to Operators of KFC
and Taco Bell Retail Outlets. Each Operator desiring membership in the KFC Coop
is required to purchase one share of KFC Coop Membership Stock regardless of
the number of Retail Outlets operated and to purchase a number of shares of KFC
Coop Store Stock which equals either (i) the total number of KFC Retail Outlets
located in the United States owned and operated by that Operator, (ii) the
total number of Retail Outlets located in a Foreign Territory owned and
operated by that Operator, (iii) the total number of KFC Retail Outlets located
in Canada owned and operated by that Operator or (iv) the total number of Taco
Bell Retail Outlets wherever located owned and operated by that Operator. If a
Member at any time becomes an Operator of additional KFC Retail Outlets within
the United States, within a Foreign Territory, or within Canada, or of
additional Taco Bell Retail Outlets, wherever located, the Operator must
purchase one additional share of KFC Coop Store Stock for each such additional
Retail Outlet. To assist the KFC Coop in negotiating purchase contracts,
Members are asked from time to time for a good faith best estimate of
purchasing intentions, but responses are not required as a condition of
membership. No purchase commitment is required as a condition of membership or,
except with respect to advance purchase commitments for certain commodities, as
a condition to purchasing from or through the KFC Coop. As of
34
<PAGE> 42
January 27, 1999, there were 688 shares of KFC Coop Membership Stock and 6,654
shares of KFC Coop Store Stock outstanding.
KFC COOP MEMBERSHIP STOCK
The KFC Coop is authorized to issue 2,000 shares of KFC Coop
Membership Stock, no par value, of which 688 shares were issued and outstanding
on January 27, 1999. The following description of KFC Coop Membership Stock is
qualified in all respects by the KFC Coop Certificate of Incorporation and
Bylaws.
Issuance in Series. KFC Coop Membership Stock is offered and issued in
series, as discussed below. Currently, the KFC Coop has provided for Series
A-Q. The KFC Coop's Certificate of Incorporation also provides for nine series
of KFC Coop Membership Stock which are designated Series R-Z. The KFC Coop
Board has no current intention to issue any shares of the Series R-Z KFC Coop
Membership Stock and is prohibited from doing so without further amendment of
its Bylaws.
KFC Operators. Operators of KFC Retail Outlets, except for KFC
Management, the NCAC, Harman and Scott's, as defined in the KFC Coop Bylaws,
are entitled to purchase one share of KFC Coop Membership Stock in Series A-G,
inclusive, depending upon their being deemed to operate a KFC Retail Outlet in
one or more of the geographic areas designated below:
<TABLE>
<CAPTION>
Series Area
<S> <C>
A - Indiana, Michigan, Ohio and West Virginia
B - Arkansas, Colorado, Kansas, Missouri, New Mexico, Oklahoma and Texas
C - Connecticut, Delaware, District of Columbia, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont
D - Alaska, Hawaii, Idaho, Montana, Oregon, Washington and Wyoming
E - Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North
Carolina, South Carolina, Tennessee and Virginia
F - Illinois, Iowa, Minnesota, Nebraska, North Dakota, South Dakota and
Wisconsin
G - Arizona, California, Nevada and Utah
</TABLE>
35
<PAGE> 43
Harman has purchased one share of Series H KFC Coop Membership Stock.
Scott's has purchased one share of Series I KFC Coop Membership Stock.
Operators of KFC Retail Outlets in Foreign Territories are entitled to purchase
one share of Series J KFC Coop Membership Stock. KFC Management has purchased
one share of Series K KFC Coop Membership Stock and the NCAC has purchased one
share of Series L KFC Coop Membership Stock. Operators of KFC Retail Outlets in
Canada, including Tricon (Canada), are entitled to each purchase one share of
Series M KFC Coop Membership Stock.
The Series H and I KFC Coop Membership Stock held by Harman and
Scott's, respectively, provide for the election of one director and the series
of such stock held by KFC Management and the NCAC provide for the election of
two directors. The KFC Coop Bylaws provide that if Harman or Scott's at any
time owns or operates fewer than 100 KFC Retail Outlets, or if KFC Management
owns or operates fewer than 200 KFC Retail Outlets, then the share of KFC Coop
Membership Stock owned by said Operators must be exchanged for one share of KFC
Coop Membership Stock of such other series as such Operator is otherwise
eligible to purchase.
Taco Bell Operators. The KFC Coop Bylaws designate Series N-Q as
series available to Taco Bell Operators. Upon completion of the Corporate
Reorganization, the KFC Coop Bylaws will be amended so that Taco Bell Operators
are only eligible to own shares of Series N KFC Coop Membership Stock.
Voting Rights. Each class of Series A-J and M-O KFC Coop Membership
Stock is entitled to elect one member of the KFC Coop Board. Series K and L
holders are entitled to elect two members of the KFC Coop Board. However, until
and unless the holders of Series J and M KFC Coop Membership Stock hold 100 or
more shares of KFC Coop Store Stock purchased or held with respect to Retail
Outlets located in the specified region, the Series J or Series M member of the
KFC Coop Board will not be nominated by a holder of Series J or Series M KFC
Coop Membership Stock, as the case may be, but will be elected by a plurality
vote of all the shares of KFC Coop Membership Stock entitled to vote at the
Annual Meeting. Each Member is entitled to cast one vote to elect a member of
the KFC Coop Board to represent its series except for the Members of Series K
and L, which are entitled to cast one vote to elect each of two members of the
KFC Coop Board from their respective series.
On all matters except the election of the KFC Coop Board, each holder
of KFC Coop Membership Stock is entitled to cast one vote on each matter on
which members are entitled to vote. The KFC Coop Bylaws provide that directors
may be elected by a plurality of the series entitled to elect such director.
Unless otherwise provided by the KFC Coop Bylaws or required by law, the
affirmative vote of two-thirds (2/3) of the Members in attendance at a meeting
at which a quorum is present is necessary to decide in favor of any matter.
Dividend Rights. Dividends may not be declared or paid with respect to
KFC Coop Membership Stock.
36
<PAGE> 44
Limitations on Ownership and Transfer; Redemption. KFC Coop Membership
Stock may be issued only to persons who satisfy the membership requirements and
no more than one share of such stock will be issued to any one Operator, except
for the limited circumstances described below. The KFC Coop Bylaws reflect the
principle of one franchisee, one vote. When a corporation, partnership or other
entity is an Operator, the owner of more than 50% of the corporation,
partnership or other entity is deemed to be the owner of the share of KFC Coop
Membership Stock issued by the KFC Coop. Where no person, corporation,
partnership or other entity owns more than 50% of the outstanding ownership
interest of a franchisee Operator, the owners of the corporation, partnership
or other entity must designate among themselves who will be deemed to own the
share of KFC Coop Membership Stock.
The KFC Coop Bylaws provide for who is entitled to vote certain shares
of KFC Coop Membership Stock in situations involving individuals who, through
different corporations, partnerships or other affiliations, may have an
interest in more than one share of KFC Coop Membership Stock. The KFC Coop
Bylaws provide that no person, firm or entity is entitled to own or have an
interest in, directly or indirectly, more than one share of KFC Coop Membership
Stock (the "Base Share"), except for (a) any interest a franchisee may have in
the share of KFC Coop Membership Stock held by the NCAC, (b) any interest a
franchisee may have in either (i) one (but only one) share of the KFC Coop's
Series A-I KFC Coop Membership Stock if a franchisee's Base Share is a share of
the KFC Coop's Series N through Q KFC Coop Membership Stock or (ii) one (but
only one) share of the KFC Coop's Series N-Q KFC Coop Membership Stock if a
franchisee's Base Share is a share of the KFC Coop's Series A-I KFC Coop
Membership Stock, (c) if a franchisee's Base Share is not a share of the KFC
Coop's Series J KFC Coop Membership Stock, any interest a franchisee may have
in one (but only one) share of the Series J KFC Coop Membership Stock, (d) if a
franchisee's Base Share is not a share of the KFC Coop's Series M KFC Coop
Membership Stock, any interest a franchisee may have in one (but only one)
share of the Series M KFC Coop Membership Stock, (e) any interest which KFC
Management may have in the Tricon (Canada) Series M share, and any interest
which Tricon (Canada) may have in KFC Management's Series K share by reason of
KFC Management and Tricon (Canada), and (f) any interest a franchisee may have
in a share of KFC Coop Membership Stock held by a firm or entity in which the
franchisee owns fifty percent or less and with respect to which the franchisee
refrains from voting or participating in the voting of the share of KFC Coop
Membership Stock. For these purposes, a franchisee includes a licensee.
If any holder of KFC Coop Membership Stock has ceased to be a Member
because it is no longer an Operator or owns less than the required amount of
KFC Coop Store Stock, such stock will be called for redemption at $10.00 per
share. Under Delaware Law, the KFC Coop may not repurchase any shares of its
stock when the capital of the KFC Coop is impaired or when such repurchase
would cause any impairment of the capital of the KFC Coop. KFC Coop Membership
Stock may not be transferred to any person or entity other than the KFC Coop.
Liquidation Rights. In the event of any liquidation of the KFC Coop,
or other disposition of its assets, the holders of KFC Coop Membership Stock
are entitled to receive $10.00 per share
37
<PAGE> 45
before any distributions are made to the holders of KFC Coop Store Stock. Any
net assets remaining after the payment of the $10.00 per share to the holders
of KFC Coop Membership Stock will be distributed to holders of the KFC Coop
Store Stock in the manner described below.
General. KFC Coop Membership Stock has no preemptive rights. The
shares of KFC Coop Membership Stock are, when issued, duly authorized, validly
issued, fully paid and nonassessable and the holders thereof will not be liable
for any payment of the KFC Coop's debts.
KFC COOP STORE STOCK
The KFC Coop is authorized to issue 10,000 shares of KFC Coop Store
Stock, no par value, of which 6,654 shares were issued and outstanding as of
January 27, 1999. The summary description of KFC Coop Store Stock provisions
which follows is qualified in all respects by the KFC Coop Certificate of
Incorporation and Bylaws.
Voting Rights. The holders of KFC Coop Store Stock are not entitled by
virtue of their ownership of KFC Coop Store Stock to vote for directors, to
participate in meetings or the management of the KFC Coop, or to vote in any
proceedings, except as required by law.
Dividend Rights. The holders of KFC Coop Store Stock are entitled to
receive dividends if declared by the KFC Coop Board. There is no current
intention to pay any dividends on KFC Coop Store Stock. However, it is
anticipated that the KFC Coop Board will continue the patronage dividend
program in accordance with past practices.
Limitations on Ownership and Transfer; Redemption. KFC Coop Store
Stock may be issued only to persons who satisfy the membership requirements
discussed above. Each Member must purchase that number of shares of KFC Coop
Store Stock equal to the total number of KFC or Taco Bell Retail Outlets owned
and operated by each Member. KFC Coop Store Stock may only be transferred to
persons, firms or entities who qualify for membership in the KFC Coop, and only
if the KFC Coop does not exercise its right of first refusal to purchase such
shares. A Member desiring to transfer one or more shares of KFC Coop Store
Stock must first offer such shares to the KFC Coop on the same terms and
conditions to which the Member has agreed with such other person, firm or
entity making an offer to purchase their stock. If the KFC Coop declines its
right of first refusal or does not respond to the offer within 90 days, the
Member, within 60 days thereafter, may sell, assign or otherwise transfer the
shares to the person, firm or entity making the offer to purchase the shares,
provided such person, firm or entity qualifies for membership in the KFC Coop.
If the shares are not sold or otherwise transferred within the 60 day period
referred to above, the shares may not be sold or transferred without the Member
again offering the shares to the KFC Coop.
Pursuant to a policy adopted by the KFC Coop Board, the KFC Coop is
authorized to purchase, for not more than the amount of the Member's equity per
share at the end of the KFC Coop's fiscal year next preceding the date of
purchase, a certain number of shares of KFC Coop
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<PAGE> 46
Store Stock in each of the KFC Coop's fiscal quarters. The KFC Coop therefore
may, but generally has no obligation to, repurchase shares of KFC Coop Store
Stock from a Member who owns shares in excess of the number required for
membership. In any event, the KFC Coop has no intention of repurchasing
substantial numbers of shares of KFC Coop Store Stock.
Liquidation Rights. In the event of any liquidation of the KFC Coop,
or other disposition of its assets, the holders of KFC Coop Store Stock will be
entitled to receive the net assets of the KFC Coop remaining after the payment
of all of its debts and liabilities and the payment of $10.00 per share to the
holders of KFC Coop Membership Stock. Liquidating distributions will be made on
the basis of past patronage with the KFC Coop rather than the number of shares
of KFC Coop Store Stock owned.
General. KFC Coop Store Stock has no preemptive or conversion rights.
The shares of KFC Coop Store Stock are, when issued, duly authorized, validly
issued, fully paid and nonassessable and the holders thereof will not be liable
for any payment of the KFC Coop's debts.
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK
INTRODUCTION
Membership in the Taco Bell Coop will be limited to Taco Bell
Corporation, a California corporation ("Taco Bell"), all franchisees and
licensees of Taco Bell and FRANMAC, a Nevada nonprofit organization
(collectively, the "Taco Bell Operators"). Each Taco Bell Operator desiring
membership in the Taco Bell Coop will be required to purchase one share of Taco
Bell Coop Membership Stock and a number of shares of Taco Bell Coop Store Stock
which equals the total number of Taco Bell Retail Outlets located in all states
and the District of Columbia owned and operated by such person, firm or entity.
For purposes of calculating the number of shares of Taco Bell Coop Store Stock
required to be purchased by a Taco Bell Operator, the total number of Retail
Outlets equals the total number of traditional Retail Outlets plus one-half,
rounded up to the nearest even number, of the total number of non-traditional
Retail Outlets. A non-traditional Retail Outlet means a Retail Outlet with more
than one of the following characteristics: (i) a five year or shorter license,
(ii) a limited menu, (iii) sales from a kiosk or other transportable unit, (iv)
sales from a segregated food service area at a location in a facility (such as
an airport, athletic stadium, university or school) established for a primary
purpose other than selling food for reasonably immediate consumption, (v)
anticipated sales volume less than anticipated sales volume for a traditional
Retail Unit, (vi) sales in conjunction with sales of another food concept, or
(vii) such other characteristics as the Taco Bell Coop Board may determine are
indicative of a non-traditional Retail Outlet. If a Member at any time becomes
an Operator of additional Taco Bell Retail Outlets, he or she will be required
to purchase one additional share of Taco Bell Coop Store Stock for each such
additional traditional Retail Outlet or for each two additional non-traditional
Retail Outlets, as the case may be. Taco Bell Coop members will be required to
purchase "virtually all" of their Goods and Equipment for use in their Retail
Outlets through the purchasing programs of the Unified Coop and the Taco Bell
Coop. The Bylaws of the Taco Bell Coop will require that more than 90% of the
value of the Taco Bell Coop's business be conducted with Taco Bell Coop members.
At the time of this Proxy Statement, no Taco Bell Coop shares are outstanding.
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<PAGE> 47
TACO BELL COOP MEMBERSHIP STOCK
The Taco Bell Coop will be authorized to issue 2,000 shares of Taco
Bell Coop Membership Stock, no par value, of which no shares are issued and
outstanding as of the date of this Proxy Statement. The following description
of Taco Bell Coop Membership Stock is qualified in all respects by the Taco
Bell Coop Certificate of Incorporation and Bylaws.
Issuance in Series. Taco Bell Coop Membership Stock will be offered
and issued in 26 series, designated A-Z. Except for Series A and B, which will
consist of one share each, the Taco Bell Coop Board will have the right, power
and authority to establish and increase or decrease the number of shares of
each series, except that in no event will the aggregate number of authorized
shares of Series C-Z, inclusive, exceed 1,998 shares.
Taco Bell Operators. Operators of Taco Bell Retail Outlets, except for
Taco Bell and FRANMAC, will be entitled to purchase one share of Taco Bell Coop
Membership Stock of Series C-G, inclusive, depending upon what geographic area
they are deemed to operate a Taco Bell Retail Outlet. Taco Bell will be
entitled to purchase one share of Series B Taco Bell Coop Membership Stock and
FRANMAC will be entitled to purchase one share of Series A Taco Bell Coop
Membership Stock. The Taco Bell Coop Bylaws will prohibit the purchase of any
Taco Bell Coop Membership Stock for Series H-Z.
Voting Rights. Each Taco Bell Coop member who holds a share in Series
A and Series C-G will be entitled to cast one vote to elect one member of the
Taco Bell Coop Board to represent its series. The Taco Bell Coop member who
holds the share of stock in Series B will be entitled to cast one vote to elect
two members of the Taco Bell Coop Board to represent its series. As to all
other matters on which each Taco Bell Coop member is entitled to vote, each
share of Taco Bell Coop Membership Stock will be entitled to one vote on each
matter.
Dividend Rights. Dividends may not be declared or paid with respect to
Taco Bell Coop Membership Stock.
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop
Membership Stock may be issued only to persons who satisfy the membership
requirements, as set forth above, and no more than one share of stock will be
issued to any one Taco Bell Operator, except for the limited circumstances
described below. The Taco Bell Coop Bylaws will reflect the Taco Bell Coop's
one franchisee, one vote principle. When a corporation, partnership or other
entity is a franchisee Operator, the owner of more than fifty percent of the
corporation, partnership or other entity is deemed to be the owner of the
shares of Taco Bell Coop Membership Stock. Where no person, corporation,
partnership or other entity owns more than fifty percent of the outstanding
ownership interest of a franchisee Operator, the owners of the corporation,
partnership or other entity must designate among themselves who will be deemed
to own the share of Taco Bell Coop Membership Stock.
The Taco Bell Coop Bylaws will explain who is entitled to vote certain
shares of Taco Bell Coop Membership Stock in situations involving individuals
who, through different corporations, partnerships or other affiliations, may
have an interest in more than one share of Taco Bell Coop Membership Stock. The
Taco Bell Coop Bylaws will provide that no person, firm or entity is
40
<PAGE> 48
entitled to own or have an interest in, directly or indirectly, more than one
share of Taco Bell Coop Membership Stock, except for (a) any interest which any
franchisee may have in the share of the Taco Bell Coop Series A Membership
Stock held by FRANMAC or (b) any interest which any franchisee may have in a
share of the Taco Bell Coop's Membership Stock (i) held by a person, firm or
entity in which the franchisee owns fifty percent or less in the aggregate of
the outstanding ownership interest and (ii) with respect to which the
franchisee refrains from voting or participating in the voting of the share of
Taco Bell Coop Membership Stock.
Unless otherwise prohibited by law, the Taco Bell Coop will promptly
redeem shares of Taco Bell Coop Membership Stock held by persons, firms or
entities who no longer qualify as Taco Bell Coop members. The redemption price
for each share of Taco Bell Coop Membership Stock will be $10.00 which will be
payable in cash, except that, if the Taco Bell Coop is prohibited by law from
redeeming such share in cash because the payment would impair the capital of
the Taco Bell Coop or otherwise, the Taco Bell Coop will issue a non-interest
bearing promissory note payable whenever the Taco Bell Coop is no longer
prohibited by law from making such payment. The Taco Bell Coop Membership Stock
may not be sold, transferred, pledged, mortgaged, gifted, or hypothecated to
any third party, either voluntarily or by operation of law, and such
restrictions will be noted on all Taco Bell Coop Membership Stock certificates.
Liquidation Rights. In the event of any dissolution or liquidation of
the Taco Bell Coop, or other disposition of its assets, the holders of Taco
Bell Coop Membership Stock will be entitled to receive $10.00 per share. The
remaining assets of the Taco Bell Coop will be distributed to the holders of
Taco Bell Coop Store Stock, as described below.
General. Taco Bell Coop Membership Stock has no preemptive rights. The
shares of Taco Bell Coop Membership Stock are, when issued, duly authorized,
validly issued, fully paid and nonassessable and the holders thereof will not
be liable for any payment of the Taco Bell Coop's debts.
TACO BELL COOP STORE STOCK
The Taco Bell Coop will be authorized to issue 10,000 shares of Taco
Bell Coop Store Stock, no par value, of which no shares are issued and
outstanding as of the date of this Proxy Statement. The following description
of Taco Bell Coop Store Stock provisions is qualified in all respects by the
Taco Bell Coop Certificate of Incorporation and Bylaws.
Voting Rights. The holders of Taco Bell Coop Store Stock will not
entitled by virtue of their ownership of Taco Bell Coop Store Stock to vote for
directors, to participate in meetings or management of the Taco Bell Coop or to
vote in any proceedings, except as required by law.
Dividend Rights. The holders of Taco Bell Coop Store Stock will not
entitled to receive dividends, other than patronage dividends.
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop
Store Stock will be issued only to persons who satisfy the membership
requirements discussed above and each Taco Bell Coop member will be required to
purchase that number of shares of Taco Bell Coop Store Stock equal to the total
number of Taco Bell Coop Retail Outlets, as determined by the total number
41
<PAGE> 49
of traditional Retail Outlets, plus one-half rounded up to the nearest even
number, of the total number of non-traditional Retail Outlets, owned and
operated by each Taco Bell Coop member. Only holders of record of Taco Bell
Coop Membership Stock will be permitted to purchase shares of Taco Bell Coop
Store Stock. Taco Bell Coop Store Stock may not be sold, transferred, pledged,
mortgaged, gifted, or hypothecated to any third party, either voluntarily or by
operation of law, and such restrictions will be noted on all Taco Bell Coop
Store Stock certificates. If a Taco Bell Coop member desires to dispose of his
or her Taco Bell Coop Store Stock, the Taco Bell Coop member must transfer his
or her Taco Bell Coop Store Stock to the Taco Bell Coop at the same price the
stockholder paid to acquire the Taco Bell Coop Store Stock.
Distribution and Liquidation Rights. In the event of any distributions
by the Taco Bell Coop to its members, liquidation of the Taco Bell Coop, or
other disposition of its assets, after the payment of all debts and liabilities
of the Taco Bell Coop and the payment of $10.00 per share to holders of Taco
Bell Coop Membership Stock, the remaining assets of the corporation will be
distributed to the holders of Taco Bell Coop Store Stock on the basis of each
member's face amount of outstanding patronage equities and distribute the
remaining assets to such members on the basis of their past patronage insofar
as such distribution is practicable.
General. Taco Bell Coop Store Stock has no preemptive or conversion
rights. The shares of the Taco Bell Coop Store Stock are, when issued, duly
authorized, validly issued, fully paid and nonassessable and the holders
thereof will not be liable for any payment of the Taco Bell Coop's debts.
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<PAGE> 50
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended July 31, 1998 and for the year ended October 31, 1997 give pro
forma effect to the Corporate Reorganization as if it had been consummated as
of November 1, 1996. The Unaudited Pro Forma Condensed Consolidated Balance
Sheets as of July 31, 1998 give pro forma effect to the Corporate
Reorganization as if it had been consummated on July 31, 1998. All material
adjustments necessary to reflect the Corporate Reorganization are presented in
the pro forma adjustments columns, which are further described in the notes to
the unaudited pro forma condensed consolidated financial statements. The pro
forma adjustments are based upon available information and upon certain
assumptions deemed reasonable by management.
The unaudited pro forma condensed consolidated financial statements are provided
for informational purposes only and should not be considered indicative of
actual results that would have been achieved had the Corporate Reorganization
been consummated on the dates or for the periods indicated and do not purport to
indicate the balance sheet data or results of operations as of any future date
or for any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto appearing in the KFC Coop's
Annual Report and Form 10-Q accompanying this proxy statement.
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<PAGE> 51
KFC NATIONAL PURCHASING COOPERATIVE, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
HISTORICAL --------------------------- KFC
KFC Taco Bell Unified Coop Pro Forma
----------- ------------ -------------- ------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 132 $ -- $(1,412)(b) 132
1,412 (c)
Accounts receivable, net 44,170 (13,458)(a) (93)(b) 30,619
Inventories:
Food 1,397 (653)(a) -- 744
Equipment and promotional items 2,153 (764)(a) -- 1,389
-------- -------- ------- -------
3,550 (1,417) -- 2,133
Current portion of note receivable from related party 60 10,677 (a) -- 10,737
Prepaid expenses and other current assets 114 -- (91)(b) 23
Current portion of deferred income taxes 758 -- -- 758
-------- ------- ------- -------
Total Current Assets 48,784 (4,198) (184) 44,402
Office equipment, net 833 -- (833)(b) 0
Investment in marketable equity security available for sale 71 -- -- 71
Investment in the Unified Coop 1,000 (b) 1,000
Loan Receivable from Unified Coop 1,000 (b) 1,000
Note receivable from related party, excluding current portion 118 -- -- 118
Deferred income taxes, excluding current portion 137 (38)(a) -- 99
Other assets 510 -- -- 510
-------- -------- ------- --------
Total Assets $ 50,453 $ (4,236) $ 983 $ 47,200
======== ======== ======= ========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ 418 -- $ 1,412 (c) $ 1,830
Accounts payable 24,179 $ (3,173)(a) -- 21,006
Accrued expenses 2,734 (196)(a) (101)(b) 2,437
Premium deposits 328 -- (328)(b) 0
Patronage dividend 1,798 (162)(a) -- 1,636
-------- -------- ------- --------
Total Current Liabilities 29,457 (3,531) 983 26,909
Long-term note payable 3,000 -- -- 3,000
-------- -------- ------- --------
Members' Equity:
Membership common stock 7 (1)(a) -- 6
Store common stock 1,884 (277)(a) -- 1,607
Unrealized gain on marketable equity security 16 -- -- 16
Retained earnings 16,166 (427)(a) -- 15,739
Currency translation adjustment (77) -- -- (77)
-------- -------- ------- --------
Total Members' Equity 17,996 (705) -- 17,291
-------- -------- ------- --------
Total Liabilities & Members' Equity $ 50,453 (4,236) $ 983 $ 47,200
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
(a) The proposed split-off of Taco Bell operations from KFC Coop will be
accounted for at fair value. Assets to be transferred to the Taco Bell
subsidiary are trade accounts receivable (net of allowance for doubtful
accounts), inventories and other assets related to the Taco Bell
operations. The book value of these assets approximates their fair
value. Liabilities to be transferred to the Taco Bell subsidiary are
trade accounts payable and other current liabilities related to the
Taco Bell operations. The book value of these liabilities approximates
their fair value. Members' equity of the Taco Bell members to be
transferred to the Taco Bell subsidiary is determined by summing the
amount paid for KFC Coop Membership Stock and KFC Coop Store Stock by
Taco Bell Members and the amount of retained earnings attributable to
the KFC Coop's Taco Bell operations on the basis of the past patronage
of Taco Bell Members with the KFC Coop. The net difference in assets,
liabilities and members' equity transferred to the Taco Bell subsidiary
will be offset by an intercompany payable by the Taco Bell subsidiary
to the KFC Coop. This intercompany payable is a result of early payment
of Taco Bell trade accounts payable by the KFC Coop. Subsequent sale of
inventory and collection of Taco Bell trade accounts receivable will
provide sufficient cash to permit the payment in full of the
intercompany payable, trade accounts payable and other current
liabilities. The intercompany liability will be payable in six monthly
installments of principal and interest. Interest will accrue at the
prime rate. Following is a summary of the pro forma adjustment as of
July 31, 1998 assuming all Taco Bell members tender their KFC Coop
Membership Stock and their KFC Coop Store Stock (dollars in thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $13,458
Inventories 1,417
Other assets 38
-------
Total Assets 14,913
-------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
-------
Total Liabilities and Members' Equity 4,236
-------
Intercompany payable/receivable $10,677
=======
</TABLE>
(b) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the KFC Coop from its primary lender,
currently approximately 6%.
(c) Reflects short-term borrowings under existing lines of credit by the
KFC Coop to fund its capital contribution and loan to the Unified Coop.
Pursuant to the Operating Agreement, the KFC Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the KFC Coop.
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<PAGE> 52
KFC NATIONAL PURCHASING COOPERATIVE, INC
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the nine months ended July 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
-----------------------------
Historical KFC
KFC KFC Taco Bell Pro Forma
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 472,725 $ (263,347)(a) $ (104,602)(a) $ 104,776
Cost of goods sold 460,024 (255,449)(a) (102,527)(a) 102,048
---------- ----------- ---------- ---------
Gross profit 12,701 (7,898) (2,075) 2,728
Selling, general and administrative expenses 10,302 (4,770)(a) (1,706)(a) 3,826
Provision for losses on receivables 442 (342)(b) (100)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop -- 2,786 (c) 2,786
Service charges 136 136
Interest income 191 191
Interest expense (162) (162)
Miscellaneous 95 95
----------- ---------- ---------- ---------
260 2,786 3,046
----------- ---------- ---------- ---------
Income before patronage
dividend and income taxes 2,217 -- (269) 1,948
Patronage dividend 1,798 (162)(d) 1,636
---------- ---------- ---------- ---------
Income before income taxes 419 -- (107) 312
Provision for income taxes 182 (45)(e) 137
---------- ---------- ---------- ---------
Net income $ 237 $ -- $ (62) $ 175
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from operators and
distributors of the respective concepts. The provision will be
recognized by the Unified Coop after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
45
<PAGE> 53
KFC NATIONAL PURCHASING COOPERATIVE, INC
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the year ended October 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
HISTORICAL ---------------------------- KFC
KFC KFC TACO BELL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 600,132 $ (345,388)(a) $ (109,361)(a) $ 145,383
Cost of goods sold 583,891 (335,068)(a) (107,228)(a) 141,595
----------- ----------- ---------- ----------
Gross profit 16,241 (10,320) (2,133) 3,788
Selling, general and administrative expenses 12,266 (6,083)(a) (1,790)(a) 4,393
Provision for losses on receivables 175 (175)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop. -- 4,062 (c) 4,062
Service charges 187 187
Interest income 339 339
Interest expense (285) (285)
Miscellaneous 112 112
----------- ----------- ---------- ----------
353 4,062 -- 4,415
----------- ----------- ---------- ----------
Income before patronage
dividend and income taxes 4,153 -- (343) 3,810
Patronage dividend 2,890 (228)(d) 2,662
----------- ----------- ---------- ----------
Income before income taxes 1,263 -- (115) 1,148
Provision for income taxes 515 (39)(e) 476
----------- ----------- ---------- ----------
Net income $ 748 -- $ (76) $ 672
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from KFC operators and
distributors. The provision will be recognized by the Unified Coop
after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
46
<PAGE> 54
TACO BELL NATIONAL PURCHASING COOP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION ADJUSTMENTS
------------------------------------ TACO BELL
TACO BELL MEMBERSHIP UNIFIED PRO FORMA
PRO FORMA (a) FEES COOP AS ADJUSTED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ -- $ 1,714 (b) $ (2,000) (d) $ --
2 (c) 284 (e)
Accounts receivable, net 13,458 13,458
Inventories:
Food 653 653
Equipment and promotional items 764 764
---------- ----------- ---------- ----------
1,417 1,417
---------- ----------- ---------- ----------
Total Current Assets 14,875 1,716 (1,716) 14,875
Investment in the Unified Coop -- 1,000 (d) 1,000
Loan receivable from the Unified Coop 1,000 (d) 1,000
Deferred income taxes, excluding current portion 38 38
---------- ----------- ---------- ----------
Total Assets $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ $ 284 (e) $ 284
Accounts payable 3,173 3,173
Accrued expenses 196 196
Patronage dividend 162 162
Note payable to the KFC Coop 10,677 10,677
---------- ---------- ----------
Total Current Liabilities 14,208 284 14,492
Members' Equity:
Membership common stock 1 $ 2 (c) 3
Store common stock 277 1,714 (b) 1,991
Retained earnings 427 427
---------- ----------- ----------
Total Members' Equity 705 1,716 2,421
---------- ----------- ---------- ----------
Total Liabilities & Members' Equity $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- -----------------
(a) Taco Bell Pro Forma represents assets, liabilities and members' equity
formerly included in the balance sheet of the KFC Coop, but
attributable to the Taco Bell concept. The proposed split-off of Taco
Bell operations from KFC Coop will be accounted for at fair value.
Assets to be transferred to the Taco Bell subsidiary are trade accounts
receivable (net of allowance for doubtful accounts), inventories and
other assets related to the Taco Bell operations. The book value of
these assets approximates their fair value. Liabilities to be
transferred to the Taco Bell subsidiary are trade accounts payable and
other current liabilities related to the Taco Bell operations. The book
value of these liabilities approximates their fair value. Members'
equity of the Taco Bell members to be transferred to the Taco Bell
subsidiary is determined by summing the amount paid for KFC Coop
Membership Stock and KFC Coop Store Stock by Taco Bell Members and the
amount of retained earnings attributable to the KFC Coop's Taco Bell
operations on the basis of the past patronage of Taco Bell Members with
the KFC Coop. The net difference in assets, liabilities and members'
equity transferred to the Taco Bell subsidiary will be offset by an
intercompany payable by the Taco Bell subsidiary to the KFC Coop. This
intercompany payable is a result of early payment of Taco Bell trade
accounts payable by the KFC Coop. Subsequent sale of inventory and
collection of Taco Bell trade accounts receivable will provide
sufficient cash to permit the payment in full of the intercompany
payable, trade accounts payable and other current liabilities. The
intercompany liability will be payable in six monthly installments of
principal and interest. Interest will accrue at the prime rate.
Following is a summary of the pro forma adjustment as of July 31, 1998
assuming all Taco Bell members tender their KFC Coop Membership Stock
and their KFC Coop Store Stock (dollars in thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $ 13,458
Inventories 1,417
Other assets 38
--------
Total Assets 14,913
--------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
--------
Total Liabilities and Members' Equity 4,236
--------
Intercompany payable / receivable $ 10,677
========
</TABLE>
(b) Reflects the issuance of Taco Bell Store Stock to an estimated 4,284
Taco Bell stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report less the number of stores belonging to
the KFC Coop prior to the reorganization."
(c) Reflects the issuance of Taco Bell Membership Stock to an estimated 217
Taco Bell operators for $10 per operator.
(d) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the Taco Bell Coop, currently estimated
to be approximately 6%."
(e) Reflects short-term borrowings by the Taco Bell Coop to fund its
contribution and loan to the Unified Coop. Pursuant to the Operating
Agreement, the Taco Bell Coop is required to make additional capital
contributions and loans from time to time to the Unified Coop in
amounts necessary to fund the working capital requirements of the
purchasing program conducted for the Taco Bell Coop. The Taco Bell Coop
has received an offer from a third-party lender for a revolving line of
credit up to an amount of $5 million.
47
<PAGE> 55
TACO BELL NATIONAL PURCHASING COOP, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the nine months ended July 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
--------- -------------- -----------
<S> <C> <C> <C>
Net sales $ 104,602 $ (104,602)(b) --
Cost of goods sold 102,527 (102,527)(b) --
--------- ---------- -----------
Gross profit 2,075 (2,075) --
Selling, general and administrative expenses 1,706 (1,706)(b) --
Provision for losses on receivables 100 (100)(c) --
Equity in earnings of
the Unified Coop 269 (d) $ 269
--------- ---------- -----------
Income before patronage
dividend and income taxes 269 -- 269
Patronage dividend 162 -- 162
--------- ---------- -----------
Income before income taxes 107 -- 107
Provision for income taxes 45 -- 45
--------- ---------- -----------
Net income $ 62 -- $ 62
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) To eliminate provision for losses on receivables from operators and
distributors of the Taco Bell concept. The provision will be recognized
by the Unified Coop after the Corporate Reorganization.
(d) The Taco Bell Coop will recognize it share of earnings of the Unified
Coop utilizing the equity method of accounting.
48
<PAGE> 56
TACO BELL NATIONAL PURCHASING COOP, INC
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the year ended October 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
------------ -------------- ------------
<S> <C> <C> <C>
Net sales $ 109,361 $ (109,361)(b) --
Cost of goods sold 107,228 (107,228)(b) --
------------ ------------- ------------
Gross profit 2,133 (2,133) --
Selling, general and administrative expenses 1,790 (1,790)(b) --
Equity in earnings of
the Unified Coop 343 (c) $ 343
------------ ------------- ------------
Income before patronage
dividend and income taxes 343 -- 343
Patronage dividend 228 228
------------ ------------- ------------
Income before income taxes 115 -- 115
Provision for income taxes 39 39
------------ ------------- ------------
Net income $ 76 -- $ 76
============ ============= ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) The Taco Bell Coop will recognize its share of earnings of the Unified
Coop utilizing the equity method of accounting.
49
<PAGE> 57
PIZZA HUT NATIONAL PURCHASING COOP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
---------------------------- Pizza Hut
Membership Unified Pro Forma
Fees COOP As Adjusted
---------- --------- -----------
Assets
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,962 (a) $ (2,000)(c) $ 963
1 (b)
------- --------- --------
Total Current Assets 2,963 (2,000) 963
Investment in the Unified Coop 1,000 (c) 1,000
Loan Receivable from the Unified Coop 1,000 1,000
------- --------- --------
Total Assets $ 2,963 -- $ 2,963
======= ========= ========
Membership common stock $ 1 (b) $ 1
Store common stock 2,962 (a) 2,962
------- --------
Total Members' Equity $ 2,963 $ 2,963
======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------------
(a) Reflects the issuance of Pizza Hut Store Stock to an estimated 7,404
Pizza Hut stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report.
(b) Reflects the issuance of Pizza Hut Membership Stock to an estimated 145
Pizza Hut operators for $10 per operator.
(c) Reflects capital contribution and loan to the Unified Coop. Pursuant
to the Operating Agreement, the Pizza Hut Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the Pizza Hut
Coop. The Pizza Hut Coop has received an offer from a third-party
lender for a revolving line of credit up to an amount of $5 million.
50
<PAGE> 58
Unified FoodService Purchasing Coop, LLC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Corporate Reorganization Adjustments
-------------------------------------------------------------------------------
Organization Other
KFC Taco Bell Pizza Hut Costs Adjustment
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,412 (a) $ 2,000 (b) $ 2,000 (c) $ 400 (d) $ (500)(e)
(400)(d)
Other current assets 184 (a) -- -- --
----------- ----------- ----------- ------------ ----------
Total Current Assets 1,596 2,000 2,000 -- (500)
Office equipment, net 833 (a) - - --
----------- ----------- ----------- ------------ ----------
Total Assets $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
Liabilities and Members' Equity
Other current liabilities $ 429 -- - -- --
Loans payable to members 1,000 (a) $ 1,000 (b) $ 1,000 (c) -- --
----------- ----------- ----------- ------------ ----------
Total current liabilities 1,429 1,000 1,000 -- --
Long-term liability -- -- -- -- $ 500 (e)
----------- ----------- ----------- ------------ ----------
Total liabilities 1,429 1,000 1,000 -- 500
Paid in capital 1,000 (a) 1,000 (b) 1,000 (c) -- --
Retained earnings -- -- - $ 400 (d) (1,000)(e)
(400)(d)
----------- ----------- ----------- ------------ ----------
Total Members' Equity 1,000 1,000 1,000 -- (1,000)
----------- ----------- ----------- ------------ ----------
Total Liabilities and Members' Equity $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
<CAPTION>
Pro Forma
Unified Coop
------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,912
Other current assets 184
------------
Total Current Assets 5,096
Office equipment, net 833
------------
Total Assets $ 5,929
============
Liabilities and Members' Equity
Other current liabilities $ 429
Loans payable to members 3,000
-----------
Total current liabilities 3,429
Long-term liability 500
-----------
Total liabilities 3,929
Paid in capital 3,000
Retained earnings (1,000)
-----------
Total Members' Equity 2,000
-----------
Total Liabilities and Members' Equity $ 5,929
===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Reflects capital contribution and loan from the KFC Coop in the form of
cash and assets.
(b) Reflects capital contribution and loan from the Taco Bell Coop.
(c) Reflects capital contribution and loan from the Pizza Hut Coop.
(d) Reflects contribution from Tricon to fund organization costs of the
Unified Coop which are immediately expensed.
(e) Reflects payments to Mr. Henrion under the Separation and Consulting
Agreement of $500,000 assuming that such payment is made on the Closing
Date, the earliest date possible in accordance with the Agreement, and
$456,500 in January 2000 along with health insurance coverage for
10 years.
51
<PAGE> 59
UNIFIED FOODSERVICE PURCHASING COOP, LLC
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the nine months ended July 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
----------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ----------- ----------
<S> <C> <C> <C>
Net sales $ 263,347 (a) $ 104,602 (a) $ 367,949
Cost of goods sold 255,449 (a) 102,527 (a) 357,976
------------ ----------- ----------
Gross profit 7,898 2,075 9,973
Selling, general and administrative expenses 4,770 (a) 1,706 (a) 6,476
Provision for losses on receivables 342 (b) 100 (b) 442
------------- ------------ ----------
Net income $ 2,786 $ 269 $ 3,055
============= =========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from operators and
distributors of the respective concepts. The provision is recognized by
the Unified Coop along with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
52
<PAGE> 60
UNIFIED FOODSERVICE PURCHASING COOP, LLC
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the year ended October 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
-------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 345,388 (a) $ 109,361 (a) $ 454,749
Cost of goods sold 335,068 (a) 107,228 (a) 442,296
---------- ---------- ----------
Gross profit 10,320 2,133 12,453
Selling, general and administrative expenses 6,083 (a) 1,790 (a) 7,873
Provision for losses on receivables 175 (b) 175
---------- ---------- ----------
Net income $ 4,062 $ 343 $ 4,405
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from KFC operators and
distributors. The provision is recognized by the Unified Coop along
with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
53
<PAGE> 61
LEGAL MATTERS
Certain matters on behalf of the KFC Coop in connection with the
Corporate Reorganization will be passed upon by Brown, Todd & Heyburn PLLC,
Louisville, Kentucky.
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must have been received by the KFC Coop on or before
October 20, 1998 to be eligible for inclusion in the KFC Coop's proxy statement
and proxy relating to that Annual Meeting.
OTHER INFORMATION
In connection with the Corporate Reorganization, the KFC Coop knows of
no federal or state regulatory requirements that must be complied with nor any
approval which must be obtained.
"Taco Bell," "Pizza Hut," and "KFC" are registered trademarks of Taco
Bell Corp., Pizza Hut, Inc., and KFCC, respectively, and are used in these
materials for identification purposes only.
54
<PAGE> 62
The KFC Coop is an independent provider of products and is not affiliated with
Taco Bell Corporation, Pizza Hut Corporation, or KFCC, except that KFCC is a
Member of the KFC Coop.
INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the KFC Coop's Audit Committee, the KFC Coop
Board dismissed KPMG Peat Marwick LLP, now KPMG LLP ("KPMG") as its principal
accountants on May 18, 1998. KPMG's report on the KFC Coop's financial
statements for the past two fiscal years did not contain any adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. Furthermore, during the KFC Coop's two
most recent fiscal years and through the date of the dismissal, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. Upon
recommendation of the KFC Coop's Audit Committee, on May 18, 1998, the KFC Coop
Board engaged PricewaterhouseCoopers LLP as its principal accountants to audit
the KFC Coop's financial statements.
Representatives of KPMG and PricewaterhouseCoopers LLP will not be
present at the Special Meeting.
WHERE YOU CAN FIND MORE INFORMATION
The KFC Coop files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission") under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). You may
read and copy this information at the following locations of the Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison
Room 1024 Suite 1300 Street
Washington, D.C. 20549 New York, New York Suite 1400
10048 Chicago, Illinois 60661-
2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
This Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like
the KFC Coop, who file electronically with the Commission. The address of that
site is http://www.sec.gov.
The Commission allows the KFC Coop to "incorporate by reference"
information into this Proxy Statement. This means that the company can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement, except for any information
that is superseded by the information that is included directly in this
document.
55
<PAGE> 63
This Proxy Statement is accompanied by a copy of the KFC Coop's 1997
Annual Report to Members and its Quarterly Report on Form 10-Q for the quarter
ended July 31, 1998. The Proxy Statement incorporates by reference the
information in the 1997 Annual Report under the headings "Summary Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and "Stock Information."
This Proxy Statement incorporates by reference the documents listed
below that the KFC Coop has previously filed with the Commission. They contain
important information about our company and its financial condition.
<TABLE>
<CAPTION>
KFC COOP SEC FILINGS PERIOD
-------------------- ------
<S> <C>
Annual Report on Form 10-K Year ended October 31, 1997
Quarterly Reports on Form 10-Q Quarters ended July 31, 1998, April 30,
1998, and July 31, 1998
Current Report on Form 8-K May 22, 1998
</TABLE>
The KFC Coop incorporates by reference additional documents it may
file with the Commission between the date of this Proxy Statement and the date
of the Special Meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through the KFC Coop, or from the Commission through the Commission's
web site at the address listed above. Documents incorporated by reference are
available from the KFC Coop without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this Proxy Statement. You can obtain documents incorporated by
reference in this Proxy Statement by requesting them in writing or by telephone
from the KFC Coop at the following address:
KFC National Purchasing Cooperative, Inc.
950 Breckenridge Lane, Suite 300
P. O. Box 32033
Louisville, Kentucky 40232
If you request any incorporated documents from us, we will mail them
to you by first class mail, or another equally prompt means, within one
business day after we receive your request.
56
<PAGE> 64
APPENDIX A
AGREEMENT AND PLAN OF CORPORATE SEPARATION
This is an Agreement and Plan of Corporate Separation (this
"Agreement") dated as of the Effective Date (as defined below), among (a) KFC
National Purchasing Cooperative, Inc. (the "KFC Cooperative"), (b) the members
of the KFC Cooperative who are the holders of the KFC Cooperative's Series O
and P membership common stock ("KFC Cooperative Membership Stock") that sign
the Signature Page and Letter of Transmittal (the "Signature Page") attached to
this Agreement and tender their stock certificates representing shares of KFC
Cooperative Membership Stock and KFC Cooperative store common stock ("KFC
Cooperative Store Common Stock") as provided below (the "Tendering Members"),
and (c) Taco Bell National Purchasing Coop, Inc. (the "Subsidiary"), a new
corporation organized by the KFC Cooperative under the General Corporation Law
of the State of Delaware.
RECITALS
A. The KFC Cooperative was incorporated on September 5, 1978.
The KFC Cooperative is, and since 1980 has been, actively engaged in the
business of operating a purchasing cooperative on behalf of and for the benefit
of Kentucky Fried Chicken retail operators. In November 1992, the KFC
Cooperative amended its certificate of incorporation and bylaws to provide for
membership in the KFC Cooperative by the owners and operators of Taco Bell
retail outlets and since then has been actively engaged in the business of
operating a purchasing cooperative on behalf of and for the benefit of Taco
Bell retail operators.
B. There are currently 94 shares of KFC Cooperative Membership
Stock (Series O and P) and 759 shares of KFC Cooperative Store Common Stock
issued and outstanding and owned of record by owners and operators of Taco Bell
retail outlets ("Taco Bell Members").
C. For the purposes of the transactions contemplated hereby, the
KFC Cooperative has identified certain assets (the "Taco Bell Assets") and
liabilities (the "Taco Bell Liabilities") of the KFC Cooperative that relate
specifically to the KFC Cooperative's Taco Bell operations, including, but not
limited to, Taco Bell product inventory and equipment, records of Taco Bell
operations, miscellaneous Taco Bell supplies and signs, purchase commitment
liabilities, intercompany liabilities attributable to accounts payable and
other liabilities related to Taco Bell operations paid or assumed by the KFC
Cooperative (the "Intercompany Liability"), and stockholders' equity related to
the KFC Cooperative's Taco Bell operations, which equity represents: (i) the
amount paid for KFC Cooperative Membership Common Stock and KFC Cooperative
Store Common Stock by Taco Bell Members and (ii) retained earnings attributable
to the KFC Cooperative's Taco Bell operations on the basis of the past
patronage of Taco Bell Members with the KFC Cooperative. The Subsidiary's
obligation to reimburse the KFC Cooperative for the Intercompany Liability is
reflected in the Promissory Note (the "Promissory Note") executed by the
Subsidiary at the time of the final calculation of the Intercompany Liability
in substantially the form attached hereto as Exhibit A. The Subsidiary's
obligation is secured by security interests granted by the Subsidiary to the
KFC Cooperative pursuant to the Security Agreement of even date herewith in the
form attached hereto as Exhibit B. The Taco Bell Assets and Taco Bell
Liabilities as of July 31, 1998,
A-1
<PAGE> 65
are reflected in the pro forma balance sheet prepared as of July 31, 1998, set
forth in the Tender Offer dated January 28, 1999 circulated to all Taco Bell
members (the "Subsidiary Pro Forma Balance Sheet").
D. As a step within a larger integrated transaction, the KFC
Cooperative and the Taco Bell Members desire to effect a division of the
business of the KFC Cooperative by transferring all of the Taco Bell Assets
(except for an amount of cash [the "Excluded Assets"] equal to the sum of $10
for each share of KFC Cooperative Membership Stock and $400 for each share of
KFC Cooperative Store Common Stock, in each case, owned by Taco Bell Members who
do not sign the Signature Page attached to this Agreement and tender their stock
certificates representing their KFC Cooperative Membership Stock and KFC
Cooperative Store Common Stock as provided herein ["Non-Tendering Members"]) and
Taco Bell Liabilities, to the Subsidiary in exchange for the original issue of
one share of the Subsidiary's membership common stock ("Subsidiary Membership
Stock") for each Tendering Member's share of KFC Cooperative Membership Stock
and one share of the Subsidiary's store common stock ("Subsidiary Store Common
Stock") for each share of KFC Cooperative Store Common Stock owned by each
Tendering Member (collectively, the "Subsidiary Shares"), which shall initially
constitute all of the outstanding capital stock of the Subsidiary except for
the one temporary share of the Subsidiary's Membership Common Stock issued to
the KFC Cooperative pursuant to the terms of a Stock Subscription and Repurchase
Agreement, which share will be redeemed at the subscription cost concurrently
with the consummation of the transactions contemplated in this Agreement.
E. In completion of this integrated transaction, the KFC
Cooperative and the Tendering Members further desire to effect the transfer of
all of the Subsidiary Shares to the Tendering Members, the Subsidiary Shares
having previously been (but concurrently herewith) acquired by the KFC
Cooperative in the manner described above, in exchange for the surrender by the
Tendering Members of all of their shares of KFC Cooperative Membership Stock
and KFC Cooperative Store Common Stock to the KFC Cooperative in a transaction
intended to qualify as a tax-free split off under Section 355 of the Internal
Revenue Code of 1986, as amended (hereinafter referred to as the "IRC"), all in
accordance with the terms and conditions set forth herein.
F. Immediately thereafter, but concurrently herewith, the
Subsidiary will accept certain subscriptions (the "Other Subscriptions") for
Taco Bell Membership Common Stock and Taco Bell Store Common Stock from
owner/operators of Taco Bell retail outlets including Taco Bell Corp., which
subscriptions are reflected on the Subsidiary Pro Forma Balance Sheet.
G. At the time of the consummation of the transactions
contemplated herein, the KFC Cooperative, the Subsidiary, and Pizza Hut
National Purchasing Coop, Inc. (collectively, the "Concept Coops"), shall each
become members of the Unified FoodService Purchasing Coop, LLC, a Kentucky
limited liability company (the "Unified Coop"). The Unified Coop shall be
formed for the purposes of conducting purchasing programs for the Concept Coops
and combining the purchasing volume for food, packaging, supplies, equipment,
and other products and services used, sold, or consumed by operators of KFC,
Taco Bell, and Pizza Hut concept restaurants and outlets in order to achieve
the lowest possible store delivered costs for restaurant operators. To achieve
the lowest possible store delivered costs, the Unified Coop shall manage and
operate purchasing programs for each of the Concept Coops consistent with the
terms of management agreements between the Unified Coop and each Concept Coop.
Pursuant to these management agreements, the KFC Cooperative shall conduct a
purchasing program for its stockholder members through the Unified Coop, and
the Subsidiary shall conduct a purchasing program for its stockholder members
through the Unified Coop. The parties are entering into this Agreement in order
to achieve the lowest possible store delivered costs for both the Taco Bell
Members and the owners and operators
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of KFC retail outlets who are stockholder members of the KFC Cooperative (the
"KFC Members"), as both the KFC Cooperative and the Subsidiary shall be members
of the Unified Coop. Moreover, the parties are entering into this Agreement so
that the Taco Bell Members will be members of a Concept Coop in which only Taco
Bell franchisees are members and the KFC Members will be members of a Concept
Coop in which only KFC franchisees are members. As the needs and requirements
of KFC franchisees and Taco Bell franchisees may differ, splitting off the Taco
Bell Members into a separate entity will allow the Subsidiary and the KFC
Cooperative to be responsive to the different needs and requirements of the
Taco Bell franchisees and KFC franchisees respectively.
H. At the time of the consummation of the transactions
contemplated herein, the KFC Cooperative and the Subsidiary shall enter into a
Continuing Services Agreement (the "Service Agreement"). Under the terms of the
Service Agreement, the Subsidiary shall have the right to receive from the KFC
Cooperative or its designee, the Unified Coop, certain resources and assets
(the "Resources") of the KFC Cooperative or its designee, the Unified Coop, not
included as part of the Taco Bell Assets, which may be attributable to the
Subsidiary's business and which the Subsidiary may need to operate its
business. The transfer of the Resources shall only occur if the KFC Cooperative
and the Subsidiary determine that the transfer has become necessary for the
operation of the Subsidiary's business. The Resources which may be transferred
from the KFC Cooperative to the Subsidiary shall include the following:
computer support and information technology, payroll processing functions,
general accounting support and general ledger assistance, and certain employees
who perform functions relating to Taco Bell business, including liabilities
attributable to those employees. The Service Agreement shall provide that, for
a specified time period, the KFC Cooperative or its designee, the Unified Coop,
will: (i) collect the distributor and Taco Bell Member accounts receivable
attributable to the Taco Bell Members on behalf of the Subsidiary and (ii)
apply and/or pay any monies collected thereon against the accounts payable
attributable to the Taco Bell Members (including the Intercompany Liability
generated to finance accounts receivable) on behalf of the Subsidiary.
I. All Taco Bell Members have been provided with a definitive
Taco Bell Member Tender Offer dated January 28, 1999 (the "Tender Offer").
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions of this Agreement hereinafter set forth, the parties agree as
follows:
1. ORGANIZATION OF SUBSIDIARY. In conjunction with and with the
advice and counsel of FRANMAC, a Nevada nonprofit organization, representing
Taco Bell restaurant operators, the KFC Cooperative has organized the Subsidiary
as a Delaware corporation, for the purpose described herein. The initial
directors of the Subsidiary have been designated with the advice and counsel of
FRANMAC.
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2. TRANSFER OF TACO BELL ASSETS AND TACO BELL LIABILITIES.
(a) Effective as of the Effective Date, the KFC
Cooperative hereby assigns, transfers, and delivers the Taco Bell Assets (other
than the Excluded Assets) and Taco Bell Liabilities to the Subsidiary in
exchange for the Subsidiary Shares and the Promissory Note in an original
principal amount equal to the Intercompany Liability as of the Effective Date.
The Subsidiary hereby assumes and agrees to discharge, perform, and pay the
Taco Bell Liabilities transferred to it by the KFC Cooperative in full and
otherwise in accordance with their terms.
(b) On or as promptly as practical, in any event not more
than five (5) days following the Effective Date, the KFC Cooperative shall
prepare and deliver to the Subsidiary and/or the Subsidiary's accountants a
proposed balance sheet for the Subsidiary prepared on a basis consistent with
generally accepted accounting principles and the Subsidiary Pro Forma Balance
Sheet (the "Proposed Effective Date Balance Sheet"). The Proposed Effective
Date Balance Sheet shall include an evaluation as of the Effective Date of the
Taco Bell Assets, the Taco Bell Liabilities, and the Intercompany Liability.
The Proposed Effective Date Balance Sheet, the Taco Bell Assets, the Taco Bell
Liabilities and the Intercompany Liability shall be determined after giving
effect to the transactions contemplated herein. The Subsidiary and the
Subsidiary's accountants shall have the right to consult during reasonable
hours with appropriate personnel of the KFC Cooperative or the Unified Coop and
to have access to, and to review, at the Subsidiary's expense, make copies of
the work papers of the KFC Cooperative or the Unified Coop, as the case may be,
with respect to the preparation of the Proposed Effective Date Balance Sheet.
(c) The Subsidiary may dispute the Proposed Effective
Date Balance Sheet and/or the determination of the Taco Bell Assets, the Taco
Bell Liabilities, or the Intercompany Liability derived therefrom prepared by
the KFC Cooperative by notice to the KFC Cooperative setting forth in
reasonable detail the amounts in dispute and the good faith basis for such
dispute within five (5) days after their receipt of the Proposed Effective Date
Balance Sheet.
(i) If the Subsidiary fails to deliver a notice
of objections within such five (5) day period, the Subsidiary shall be deemed
to have accepted the Proposed Effective Date Balance Sheet and the
determination of the Taco Bell Assets, the Taco Bell Liabilities, and the
Intercompany Liability derived therefrom and such shall be binding on the
parties hereto, and shall not be subject to challenge by any party hereto in
any form.
(ii) If the Subsidiary delivers a notice of
objections within such five (5) day period, the Subsidiary and the KFC
Cooperative and their accountants shall attempt in good faith to resolve such
dispute, and any resolution as to any disputed amount shall be final, binding
and conclusive on the parties hereto. If there is no resolution of such dispute
within five (5) days of the date of receipt by the KFC Cooperative of a written
notice of dispute, the KFC Cooperative and the Subsidiary shall, within five
(5) additional days, retain a reputable independent accounting firm (the
"Independent Accountant"), which Independent Accountant shall be mutually
acceptable to the KFC Cooperative and the Subsidiary. The Independent
Accountant shall, within thirty (30) days after being retained, resolve such
remaining dispute, and provide written notice of such resolution by facsimile,
confirmed by mail, and such resolution shall be binding and conclusive on the
parties hereto. Such resolution shall be within the range of amounts proposed
by the Subsidiary
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and the KFC Cooperative and their accountants as to each disputed item. The
fees and disbursements of the Independent Accountant shall be borne equally by
the KFC Cooperative and the Subsidiary. After resolving the items in dispute,
the Independent Accountant shall prepare and deliver a final Effective Date
Balance Sheet and a certification of the value of the Taco Bell Assets, the
Taco Bell Liabilities, and the Intercompany Liability derived therefrom or
shown thereon which shall be binding on the parties hereto and shall not be
subject to challenge by any party hereto in any form.
(d) Upon final determination of the Intercompany
Liability, the Subsidiary shall within five (5) days of the determination
thereof, execute and deliver the Promissory Note reflecting the Subsidiary's
obligation to pay the amount of the Intercompany Liability in accordance with
the terms of the Promissory Note to the KFC Cooperative.
3. RETAINED ASSETS. The KFC Cooperative shall retain all other
tangible and intangible assets and liabilities now owned by the KFC
Cooperative.
4. EXCHANGE FOR SUBSIDIARY SHARES. Effective as of the Effective
Date, the Tendering Members hereby transfer, assign, and surrender to the KFC
Cooperative all of their shares of KFC Cooperative Membership Stock and KFC
Cooperative Store Common Stock, in exchange solely for the transfer by the KFC
Cooperative to the Tendering Members of one share of Subsidiary Membership
Stock for each share of KFC Cooperative Membership Stock owned by each
Tendering Member and one share of Subsidiary Store Common Stock for each share
of KFC Cooperative Store Common Stock owned by each Tendering Member, which
Subsidiary Shares shall, at such time, and prior to the acceptance of the Other
Subscriptions constitute all of the outstanding capital stock of Subsidiary.
5. REPRESENTATIONS
(a) KFC COOPERATIVE REPRESENTATIONS. The KFC Cooperative
represents and warrants to the Tendering Members that as of the Effective Date:
(i) SUBSIDIARY ORGANIZATION AND AUTHORITY. The
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary corporate
power and authority to conduct the business of a purchasing cooperative and to
execute and deliver this Agreement and to perform its obligations under this
Agreement. This Agreement shall be enforceable against the KFC Cooperative in
accordance with its terms.
(ii) AUTHORIZATIONS. The execution and delivery of
this Agreement, the consummation of the transactions contemplated thereby, and
the fulfillment of their obligations and undertakings thereunder, will not
violate any provision of any applicable law, ordinance, rule or regulation of
any governmental body, the certificate of incorporation or bylaws of the KFC
Cooperative, or any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority applicable to the KFC
Cooperative. The execution and delivery of this Agreement and the performance
and consummation of the transactions contemplated thereby have been duly
authorized by all requisite corporate action of the KFC Cooperative.
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(iii) SUBSIDIARY CAPITAL STOCK. The authorized capital
stock of the Subsidiary will consist of 2,000 shares of Subsidiary Membership
Stock and 10,000 shares of Subsidiary Store Common Stock, of which a number of
shares of Subsidiary Membership Stock equal to the number of Tendering Members
and a number of shares of Subsidiary Store Common Stock equal to the number of
shares of KFC Cooperative Store Common Stock owned by the Tendering Members
shall be issued and outstanding prior to the acceptance of the Other
Subscriptions. All of the issued and outstanding Subsidiary Shares shall have
been duly authorized, and upon transfer of the Taco Bell Assets (other than the
Excluded Assets) by the KFC Cooperative, and the assumption of the Intercompany
Liability by the Subsidiary, will be validly issued, fully paid, and
nonassessable, and owned beneficially and of record by the KFC Cooperative,
free and clear of all liens, pledges, encumbrances, security interests, claims,
charges, options and restrictions. The KFC Cooperative shall transfer, deliver
and vest in the Tendering Members good and marketable (legal and beneficial)
title to the Subsidiary Shares free and clear of all liens, pledges,
encumbrances, security interests, claims, charges, options and restrictions,
and there are no outstanding agreements, options, warrants or other rights of
any kind whatsoever of any kind entitling any person or entity to purchase or
acquire an interest in any of the Subsidiary Shares other than those
contemplated in this Agreement.
(iv) TITLE TO TACO BELL ASSETS. The KFC Cooperative shall
have transferred to the Subsidiary good and marketable title to the Taco Bell
Assets (other than the Excluded Assets) free and clear of all liens, pledges,
encumbrances, security interests, claims, charges, options and restrictions
except those liabilities reflected in the Subsidiary Pro Forma Balance Sheet,
those reflected in the Promissory Note, and any liabilities related to the KFC
Cooperative's Taco Bell operations incurred in the ordinary course of business
since July 31, 1998.
(b) SUBSIDIARY REPRESENTATIONS. The Subsidiary represents and
warrants to the Tendering Members that as of the Effective Date: (i) the
execution and delivery of this Agreement, the consummation of the transactions
contemplated thereby, and the fulfillment of its obligations and undertakings
thereunder, will not violate any provision of any applicable law, ordinance,
rule or regulation of any governmental body, the certificate of incorporation
or bylaws of the Subsidiary, or any judgment, decree, writ, injunction, order
or award of any arbitration panel, court or governmental authority applicable
to the Subsidiary and (ii) the execution and delivery of this Agreement and the
performance and consummation of the transactions contemplated thereby have been
duly authorized by all requisite corporate action of the Subsidiary.
6. TENDERING MEMBER REPRESENTATIONS AND ACKNOWLEDGMENTS. Each
Tendering Member represents and warrants to the KFC Cooperative and, as the
case may be, acknowledges that as of the Effective Date:
(a) AUTHORITY. The Tendering Member has the full power,
authority and capacity to transfer the Tendering Member's shares of KFC
Cooperative Membership Stock and KFC Cooperative Store Common Stock to the KFC
Cooperative in the manner provided herein, free and clear of any liens,
pledges, encumbrances, security interests, claims, charges, options and
restrictions whatsoever.
(b) AUTHORIZATIONS. The execution and delivery of this
Agreement, the consummation of the transactions contemplated thereby, and the
fulfillment of their obligations and undertakings thereunder, will not violate
any provision of any applicable law, ordinance, rule or regulation of any
governmental body, the organizational documents of the Tendering Member, or any
judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority applicable to the Tendering Member. The
execution and delivery of this Agreement and the performance and consummation
of the transactions contemplated thereby have been duly authorized by all
requisite corporate or other action of the Tendering Member.
(c) TITLE TO STOCK. The Tendering Member shall transfer,
deliver and vest in the KFC Cooperative good and marketable (legal and
beneficial) title to the shares of KFC Cooperative Membership Stock and KFC
Cooperative Store Common Stock tendered herewith, free and clear
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of all liens, pledges, encumbrances, security interests, claims, charges,
options and restrictions whatsoever, and there are no outstanding agreements,
options, warrants or other rights of any kind whatsoever entitling any person
or entity to purchase or acquire an interest in any of such shares other than
those which arise pursuant to this Agreement.
(d) SECURITIES REPRESENTATIONS AND ACKNOWLEDGMENTS.
(i) The Subsidiary Shares to be acquired by the
Tendering Member hereunder will not be acquired with the view to a sale or
other disposition thereof. The Tendering Member acknowledges that, under the
Certificate of Incorporation and Bylaws of the Subsidiary, the Membership
Common Stock and Store Common Stock of the Subsidiary may not be sold,
transferred, pledged, mortgaged, gifted, or hypothecated to any third party,
either voluntarily or by operation of law, and such restrictions shall be noted
conspicuously on all certificates of Membership Common Stock and Store Common
Stock. The Tendering Member consents to the placement of legends on the
certificates representing the Membership Common Stock shares and the Store
Common Stock shares to reflect that the Membership Common Stock and Store
Common Stock of the Subsidiary may not be sold, transferred, pledged,
mortgaged, gifted, or hypothecated to any third party, either voluntarily or by
operation of law.
(ii) The Tendering Member has received a copy of
the KFC Cooperative's Proxy Statement and the Tender Offer, both dated January
28, 1999.
(iii) The Tendering Member or its advisors have
had the opportunity to ask questions and receive answers concerning the terms
and conditions of the transactions contemplated herein and to obtain any
additional information (to the extent that the KFC Cooperative possesses or can
acquire such information without unreasonable effort or expense) necessary in
connection with the transactions contemplated hereunder.
7. COMMITMENTS RELATED TO TACO BELL COOP MEMBERSHIP.
(a) PURCHASE COMMITMENTS. Each Tendering Member
acknowledges that by virtue of such Tendering Member's execution of the
Signature Page and tender of certificates representing KFC Cooperative
Membership Common Stock and KFC Cooperative Store Common Stock, such Tendering
Member shall become a member of the Taco Bell Coop and shall become subject to
and agrees to abide by the terms and commitments set forth in the Taco Bell
Coop's Bylaws, as amended from time to time, a copy of which has been provided
to each Tendering Member as part of the Tender Offer. Without limiting the
generality of the foregoing, each Tendering Member acknowledges and agrees to
purchase virtually all the food, packaging and supplies, and related services
and equipment purchased by such Tendering Member in connection with the
operation of the Tendering Member's Taco Bell retail outlets as provided in the
Bylaws of the Taco Bell Coop, as amended from time to time, and further each
Tendering Member acknowledges and agrees that the Tendering Member's membership
in the Taco Bell Coop constitutes the consent of such Tendering Member to
include in such Tendering Member's gross income the amount of any patronage
dividend which is paid with respect to direct sales from the Taco Bell Coop,
and indirect sales through participating distributors and money, "qualified
checks," "qualified written notices of allocation" or other property (except
"non-qualified written notices of allocation" as defined in Section 1388(d) of
the Internal Revenue Code 1986, as amended) and which is received by the
Tendering Member during the taxable year from the Taco Bell Coop.
(b) OTHER COMMITMENTS. The Tendering Member understands,
acknowledges and agrees to coordinate all requests to Tricon Global
Restaurants, Inc., and its affiliates, for supplier and distributor approval
through the subsidiary and/or the Unified Coop.
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8. TAX INDEMNIFICATION.
(a) KFC Cooperative shall indemnify the Subsidiary and
each of its respective officers, directors, employees and agents and hold them
harmless from (i) all liability for Taxes of the Subsidiary for the
Pre-Effective Date Tax Period, (ii) all liability (as a result of Treasury
Regulation 1.1502-6 or otherwise) for Taxes of any Affiliated Group or any
member of any Affiliated Group and (iii) all liability for reasonable legal
fees and expenses attributable to any item in clause (i) and (ii) above.
(b) The Subsidiary shall indemnify KFC Cooperative and
its affiliates and each of its respective officers, directors, employees and
agents and hold them harmless from (i) all liability for Taxes of KFC
Cooperative related to the Subsidiary after the Pre-Effective Date Tax Period
(other than Taxes described in clauses (a)(i) and (a)(ii) of this Section 8)
and (ii) all liability for reasonable legal fees and expenses attributable to
any item in clause (i) above.
(c) In the case of any taxable period that includes (but
does not end on) the Effective Date (each a "Straddle Period"):
(i) real, personal and intangible property Taxes
("Property Taxes") of the Subsidiary attributable to the Pre-Effective Date Tax
Period shall be equal to the amount of such Property Taxes for the entire
Straddle Period multiplied by a fraction, the numerator of which is the number
of days during the Straddle Period that are in the Pre-Effective Date Tax
Period and the denominator of which is the number of days in the Straddle
Period; and
(ii) the Taxes of the Subsidiary (other than
Property Taxes) attributable to the Pre-Effective Date Tax Period shall be
computed as if such taxable period ended as of the close of business on the
Effective Date.
KFC Cooperative's indemnity obligation in respect of taxes for a Straddle
Period that are KFC Cooperative's responsibility under this Section 8 shall
initially be effected by its payment to the Subsidiary of the excess of (x)
such Taxes for the Pre-Effective Date Tax Period over (y) the amount of such
Taxes paid by KFC Cooperative or any of its affiliates (other than the
Subsidiary) at any time plus the amount of such Taxes paid or accrued by the
Subsidiary on or prior to the Effective Date. KFC Cooperative shall initially
pay such excess to the Subsidiary within five days prior to the due date of any
return, report or form with respect to Straddle Period Taxes. If the amount of
such Taxes paid by KFC Cooperative or any of its affiliates (other than the
Subsidiary) at any time plus the amount of such Taxes paid or accrued by the
Subsidiary on or prior to the Effective Date exceeds the amount payable by KFC
Cooperative pursuant to the preceding sentence, the Subsidiary shall pay to KFC
Cooperative the amount of such excess (a) in the case of Property Taxes, at the
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Effective Date and (b) in all other cases, within five days prior to the due
date of the return, report or form [which is required to be filed] with respect
to the final liability for such Taxes.
(d) The payments to be made pursuant to this Section 8 by
any person with respect to Taxes shall be appropriately adjusted to reflect any
final determination with respect to such Taxes.
(e) For purposes of this Section 8, (A) "Tax" or "Taxes"
shall mean all Federal, state, local and foreign taxes, charges, fees, levies
and assessments, and any other governmental impositions of any kind whatsoever,
which may be imposed, no matter how measured or applied, including all
interest, penalties and additional imposed with respect to such amounts; (B)
"Pre- Effective Date Tax Period" shall mean all taxable periods ending on or
before the Effective Date and the portion ending on the Effective Date of any
taxable period that includes (but does not end on) such day; and (C)
"Affiliated Group" shall mean each affiliated group (within the meaning of IRC
Section 1504) or consolidated, combined or unitary group (under any state or
local Tax law) of which the Subsidiary is or has been a member and which KFC
Cooperative is the common parent within the meaning of IRC Section 1504 or any
analogous provision of state or local Tax law.
9. INDEMNIFICATION BY KFC COOPERATIVE. KFC Cooperative shall
indemnify the Tendering Members and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by any such indemnified party (other than any
relating to Taxes, for which indemnification provisions are set forth in
Section 8) to the extent arising from (i) any breach of any representation or
warranty of KFC Cooperative contained in this Agreement, or any certificate,
instrument or other document delivered by it pursuant hereto, or (ii) any
breach of any covenant of KFC Cooperative contained in this Agreement.
10. INDEMNIFICATION BY THE TENDERING MEMBERS. Each Tendering
Member shall indemnify KFC Cooperative, its affiliates, and each of their
respective officers, directors, employees and agents and hold them harmless
from any loss, liability, claim, damage or expense (including reasonable legal
fees and expenses) suffered or incurred by any such indemnified party (other
than any related to Taxes, for which indemnification provisions are set forth
in Section 8) to the extent arising from (i) any breach of any representation
or warranty of the Tendering Member contained in this Agreement, or any
certificate, instrument or other document delivered by it pursuant hereto, or
(ii) any breach of any covenant of the Tendering Member contained in this
Agreement.
11. SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Effective Date and the
consummation of the transactions contemplated herein.
12. EFFECTIVE DATE. The transactions contemplated herein shall
become effective on the date (the "Effective Date") and at the time all of the
other transactions contemplated as part of the Corporate Reorganization
described in the Proxy Statement dated January 28, 1999, and delivered to all
shareholders of the KFC Cooperative are consummated. On or as soon as
practicable following the Effective Date, the KFC Cooperative and the
Subsidiary shall execute and deliver to the other all other instruments and
assurances, and do all things, reasonably necessary and proper
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to effect the transactions contemplated hereby including delivering stock
certificates to the Tendering Members representing the Subsidiary Shares
transferred to each of them hereunder.
13. FURTHER ASSURANCES. At any time and from time to time after
the date hereof, upon request of any of the parties hereto and without the
payment of any further consideration, the parties hereto shall duly execute,
acknowledge, and deliver all such assignments, conveyances and other incidents
of transfer and other assurances and documents, and will take such further
action, consistent with the terms of this Agreement, as reasonably may be
requested for the purpose of better consummating the transactions contemplated
hereby.
14. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
among the parties hereto, and supersedes all prior and contemporaneous
agreements, with respect to the subject matter hereof. No change, modification,
addition or termination of this Agreement shall be enforceable unless in
writing and signed by the party against whom enforcement is sought.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware excluding the
application of its conflicts of laws principles.
16. COUNTERPARTS. Each Tendering Member and the KFC Cooperative
and the Subsidiary shall become a party to this Agreement upon signing a
counterpart of the Signature Page to this Agreement. Each of such counterparts
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement or the terms hereof to produce or account for more than one of
such counterparts. A photocopy of a fully executed counterpart of this Agreement
shall be provided to each Tendering Member on or as promptly as practicable
following the Effective Date.
17. FEES AND EXPENSES. Each of the parties to this Agreement shall
pay their own expenses, including but not limited to legal and accounting
expenses, incurred in connection with this Agreement and the transactions
contemplated hereby.
19. HEADINGS. The headings used in this Agreement have been
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement.
20. TAX RETURNS. The KFC Cooperative shall file any Tax returns in
a manner consistent with the stated intent of this Agreement to effect a
tax-free split off under IRC Section 355.
IN WITNESS WHEREOF, the KFC Cooperative has executed this Agreement as
of the Effective Date.
KFC NATIONAL PURCHASING COOPERATIVE,
INC.
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By
-----------------------------------
----------------, Chairman
TACO BELL NATIONAL PURCHASING
COOP, INC.
By
-----------------------------------
----------------, Chairman
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TENDERING MEMBER SIGNATURE PAGE AND LETTER OF TRANSMITTAL
The undersigned, referred as a Tendering Member, in the Agreement and
Plan of Corporate Separation attached as Appendix A to the KFC Cooperative's
Proxy Statement dated January 28, 1999,(a) hereby acknowledges receipt and
review of the Taco Bell Member Tender Offer dated January 28, 1999, and the
Proxy Statement dated January 28, 1999, including the Agreement and Plan of
Corporate Separation attached as Appendix A,(b) hereby becomes a party to the
foregoing Agreement, and (c) hereby tenders and surrenders to the KFC
Cooperative certificates representing _________ shares of KFC Cooperative
Membership Stock represented by certificate nos.__________ and _________ shares
of KFC Cooperative Store Common Stock represented by certificate nos.__________,
to be held by the KFC Cooperative in accordance with the terms of the Tender
Offer dated January 28, 1999, and on the Effective Date to be exchanged for the
number of shares of Subsidiary Membership Stock and Subsidiary Store Common
Stock to which the Tendering Member is entitled pursuant to the foregoing
Agreement. The undersigned Tendering Member acknowledges that by executing this
Signature Page and Letter of Transmittal that the Tendering Member is making
certain representations and warranties concerning the Tendering Member's
ownership of the foregoing described stock and is providing certain information,
which in each case the Tendering Member certifies as true, accurate and
complete. The undersigned Tendering Member understands that the inaccuracy of
any of the representations, warranties or information made or provided by the
Tendering Member in the foregoing Agreement or this Signature Page and Letter of
Transmittal, or the failure to provide any information requested, may result in
the rejection of the shares surrendered herewith and the invalidity of the
foregoing Agreement as to such Tendering Member.
The undersigned Tender Member further understands, acknowledges and
agrees that the Tendering Member is making certain purchase and other
commitments to the Unified Coop and that the undersigned Tendering Member
agrees to abide by and to fulfill such commitments in all respects.
The undersigned Tendering Member will, upon request, execute any
additional documents necessary or desirable to complete the surrender and
exchange of the foregoing shares in accordance with the foregoing Agreement.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, if the undersigned is an individual, and
all obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. All
capitalized terms not defined in this Signature Page and Letter of Transmittal
have the meaning set forth in the foregoing Agreement.
TO TENDER YOUR SHARES, YOU MUST (A) EXECUTE THIS SIGNATURE PAGE AND LETTER
OF TRANSMITTAL AND (B) EITHER ENCLOSE YOUR KFC COOP STOCK CERTIFICATE(S) ALONG
WITH THIS SIGNATURE PAGE AND LETTER OF TRANSMITTAL OR REQUEST AND COMPLETE AN
AFFIDAVIT OF LOST CERTIFICATE FROM THE KFC COOP.
SIGN AT TOP OF NEXT PAGE
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SIGN HERE
Date:
- --------------------------------- ---------------------------------
Date:
- --------------------------------- ---------------------------------
SIGNATURE OF OWNER(S)
If a signature is by persons acting in a fiduciary or representative capacity,
please provide the following information.
Name
- ---------------------------------
(please print)
Capacity (full title)
------------ --------------------------------------
Area code and telephone number
Address:
-------------------------
--------------------------------------
- --------------------------------- Fax number
- --------------------------------- --------------------------------------
(include zip code) Tax I.D. or S.S. Number
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IMPORTANT TAX INFORMATION
Under the federal income tax law, a Tendering Member whose shares are
surrendered is required to provide the KFC Cooperative with such shareholder's
correct TIN on substitute Form W-9 below. If such shareholder is an individual,
the TIN is his or her social security number. If the KFC Cooperative is not
provided with the correct TIN, the shareholder may be subject to a penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such shareholders with respect to shares surrendered may be subject to backup
withholding.
If backup withholding applies, the KFC Cooperative is required to
withhold 31% of any payments made to the shareholders. Backup withholding is
not additional tax. Rather, the shareholders may offset the amount of tax
withheld against his or her federal tax liability on such shareholder's federal
income tax return. If withholding results in an overpayment of taxes, a refund
may be obtained from the Internal Revenue Service.
To prevent backup withholding on payments that are made to a
shareholder with respect to shares surrendered, the shareholder is required to
notify the KFC Cooperative of his or her correct TIN by completing the form
below certifying that the TIN provided on substitute Form W-9 is correct (or
that such shareholder is awaiting a TIN) and (1) the shareholder has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the shareholder that he or she is no
longer subject to backup withholding.
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
Please provide your Social Security or other identification number and
certify by signing and dating below: .
---------------------------------
CERTIFICATION: Under penalties of perjury, I certify that the number
shown on this form is my valid tax identification number and that I am not
subject to backup withholding either because I have not been notified that I am
subject to backup withholding as a result of a failure to report all interest
or dividends or the Internal Revenue Service has notified me that I am no
longer subject to backup withholding.
Signature:
-------------------------------
Date:
------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within 60 days, 31%
of all reportable payments made to me will be withheld.
Signature:
-------------------------------
Date:
------------------------------------
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EXHIBIT A
PROMISSORY NOTE
$__________ __________, 199__
Louisville, Kentucky
For value received, Taco Bell National Purchasing Coop, Inc., a
Delaware corporation ("Maker"), promises to pay to the order of the KFC
National Purchasing Cooperative, Inc. , a Delaware corporation ("Payee"), the
principal sum of ____________ DOLLARS ($__________), together with interest on
the principal of this note from time to time outstanding at the rate or rates
set forth below. Interest on this note shall accrue from the date of this note
until the entire principal balance of and all accrued interest on this note
have been paid in full.
1. INTEREST RATE. The annual rate of interest to be paid by the Maker
on the outstanding principal of this note shall be _______% (the prime rate
reported in the "Money Rates" section of The Wall Street Journal on the date
of this note). Each payment on this note shall be applied first to accrued but
unpaid interest and then to reduction of principal.
2. PAYMENTS. On ________ 1, 1999, and on the first day of each month
thereafter through and including ___________, 1999 (the "Maturity Date")
(INSERT THE DATE SIX MONTHS AFTER THE DATE OF THIS NOTE), Maker shall pay
Payee an installment of principal and interest equal to ______________ DOLLARS
($_________)(CALCULATE AND INSERT AMOUNT NECESSARY TO EVENLY AMORTIZE PRINCIPAL
OVER THE SIX MONTH PERIOD). All principal and accrued interest on this note
shall be due and payable on the Maturity Date. All or any part of the
outstanding principal amount of this note may be prepaid at any time without
penalty. The Maker shall prepay the principal of the note to the extent payments
are received by Maker or by the Payee on behalf of Maker with respect to
accounts receivable transferred by Payee to Maker pursuant to terms of that
certain Agreement and Plan of Corporate Separation of even date herewith,
among the Maker, Payee, and certain holders of Payee's Series O and P
Membership Common Stock. All prepayments shall be applied first to accrued but
unpaid interest on this note and then to the unpaid principal amount of this
note.
3. EVENTS OF DEFAULT. Failure of the Maker to pay any installment
payment of principal and interest on this note within five (5) calendar days of
the due date thereof shall constitute a default under this note. Upon default
under this note, the Payee may, at its option, and without notice, declare the
entire unpaid balance of, and all accrued interest on, this note to be
immediately due and payable.
4. FORBEARANCE. Failure of the Payee to exercise any of its rights and
remedies shall not constitute a waiver of any provision of this note or of any
of the Payee's rights and remedies, nor shall it prevent the Payee from
exercising any rights or remedies with respect to the subsequent happening of
the same or similar occurrences. All remedies of the Payee shall be cumulative
to the greatest extent permitted by law. Time shall be of the essence of
payment of all payments of interest and principal on this note.
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15. GOVERNING LAW. This note has been delivered in, and shall be
governed by and construed in accordance with the laws (excluding the conflicts
of law rules) of the Commonwealth of Kentucky.
16. COLLECTION COSTS AND EXPENSES. If there is any default under this
note, and this note is placed in the hands of an attorney for collection, or is
collected through any court, including any bankruptcy court, Maker promises to
pay the Payee its reasonable attorneys' fees and court costs incurred in
collecting or attempting to collect this note, to the extent allowed by the
laws of the Commonwealth of Kentucky or any state in which any collateral
securing payment of this note is situated.
17. WAIVERS. Except as otherwise expressly provided herein, all parties
to this instrument, whether makers, sureties, guarantors, endorsers,
accommodation parties or otherwise, shall be jointly and severally bound, and
jointly and severally waive presentment, demand, notice of dishonor, protest,
notice of protest, notice of nonpayment or nonacceptance and any other notice
and all due diligence or promptness that may otherwise be required by law, and
all exemptions to which they may now or hereafter be entitled under the laws of
the Commonwealth of Kentucky or of the United States of America or any state
thereof. The Payee may, with or without notice to any party, and without
affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party or any other party to this note (1) extend the time for
payment of either principal or interest from time to time, (2) release or
discharge any one or more parties liable on this note, (3) suspend the right to
enforce this note with respect to any persons, (4) change, exchange or release
any property in which the Payee has any interest securing this note, (5)
justifiably or otherwise, impair any collateral securing this note or suspend
the right to enforce against any such collateral, and (6) at any time it deems
it necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
TACO BELL NATIONAL
PURCHASING COOP, INC.
By________________________________
Title:____________________________
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EXHIBIT B
SECURITY AGREEMENT
This is a Security Agreement dated as of ____________(this
"Agreement"), between KFC National Purchasing Cooperative, Inc. ("Creditor"), a
Delaware corporation, and Taco Bell National Purchasing Coop, Inc., a Delaware
corporation (the "Debtor").
RECITALS
A. The Debtor is indebted to the Creditor pursuant to the terms of a
certain Agreement and Plan of Corporate Separation (the "Corporate Separation
Agreement") of even date herewith, among Creditor, members of the Creditor who
are holders of Creditor's Series O and P membership common stock who sign the
signature page and letter of transmittal accompanying such agreement and tender
their stock certificates representing their membership and store common stock
of the Creditor and that certain promissory note referenced in and executed
pursuant to the Corporate Separation Agreement (the "Note").
B. The Debtor is entering into this Agreement to secure the payment of
the Note and the Debtor's other obligations to the Creditor under the Corporate
Separation Agreement.
C. This Agreement is being entered into concurrently with the Corporate
Separation Agreement, and the Creditor is relying upon the Debtor's obligations
evidenced by this Agreement.
NOW, THEREFORE, the Debtor and the Creditor agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings,
and the meanings assigned to all capitalized terms used herein shall be equally
applicable to both the singular and plural forms of the terms defined:
"Accounts Receivable" shall mean any and all (a) rights to payment
for any goods sold or services performed, whether such right to payment exists
on the date of this Agreement or is created thereafter, and whenever and
wherever acquired or arising, whether or not such right to payment has been
earned by performance, and whether or not such right to payment is evidenced by
any document, instrument or chattel paper, and including, but not limited to,
any and all goods or Inventory returned to or repossessed and any and all claims
against common carriers for goods and Inventory damaged or lost in transit; and
(b) the proceeds or products of any of the foregoing. The amount of an Account
Receivable shall be the amount of the receivable net of all contractual
allowances and other discounts.
"Collateral" shall mean any or all of the property in which the
Debtor grants to the Creditor a security interest under Section 2 of this
Agreement.
"Debtor Documents" shall mean, collectively, the Note, this
Agreement, the Corporate Separation Agreement and any and all other documents,
instruments, agreements and writings to be executed by the Debtor which relate
directly or indirectly to this Agreement.
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"Event of Default" shall have the meaning given that term in
Section 8 of this Agreement.
"Indebtedness" shall mean the all amounts outstanding pursuant
to the Corporate Separation Agreement and/or the Note.
"Inventory" shall mean any and all of the following, whether
owned or held on the date of this Agreement or acquired thereafter: (a) goods
(including, without limitation, those goods against which Warehouse Receipts
have been issued), which are held for sale or lease, (b) goods to be furnished
under contracts of service, and after so furnishing them, (c) raw materials,
work in process and materials used or consumed in business, and (d) goods
returned to or repossessed by their seller.
"Note" shall mean the promissory note referenced in and executed
pursuant to the Corporate Separation Agreement, made by the Debtor and payable
to the order of the Creditor, and any and all notes and other instruments
executed and delivered in renewal, replacement, substitution, extension,
payment and/or novation thereof.
"Person" shall mean any individual, partnership, association,
firm, trust, corporation or other entity.
"Secured Obligations" shall mean all of the obligations secured
by this Agreement as set forth in Section 3 of this Agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the Commonwealth of Kentucky from time to time.
"Unmatured Default" shall mean the happening of any event or
occurrence which, together with the giving of any required notice or the
passage of any required period of time, or both, would constitute an Event of
Default.
"Warehouse Receipts" shall mean any and all of the
non-negotiable warehouse receipts and/or other documents of title issued by any
Warehousemen with respect to any Inventory.
"Warehousemen" shall mean any Persons holding or storing any of
the Inventory who have issued Warehouse Receipts evidencing their holding or
storage of such Inventory.
2. GRANT OF SECURITY INTERESTS.
(a) The Debtor grants to the Creditor a security interest in the
following property:
(i) all of the Debtor's right, title and interest in and to
the Debtor's Accounts Receivable;
(ii) all of the Debtor's right, title and interest in and to
the Debtor's Inventory;
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(iii) any and all property which the Debtor receives or is or
may hereafter be entitled to receive on account of any collections of or with
respect to the Debtor's Accounts Receivable, or any instrument in payment of or
substitution for any of the Debtor's Accounts Receivable, or any part thereof;
and
(iv) any and all property which the Debtor receives or which
the Debtor may hereafter become entitled to receive on account of any sale,
exchange, transfer or other disposition of the Debtor's Inventory, or any part
thereof.
(b) The Debtor grants to the Creditor a further security interest in
and to any and all of the Debtor's goods, chattel paper, documents, instruments
(as those terms are defined in the Uniform Commercial Code) and money, whether
now existing or acquired subsequent to the date of this Agreement.
(c) The Debtor grants a further security interest to the Creditor in
the proceeds and products of any sale, exchange, collection or other disposition
of the Collateral or any part thereof.
3. OBLIGATIONS SECURED. The security interests granted by the Debtor
hereby secure the payment and performance of all of the following Secured
Obligations: (a) any and all indebtedness of the Debtor to the Creditor
evidenced by the Note or described in the Corporate Separation Agreement, and
(b) any and all of the representations, warranties, obligations, agreements,
covenants and promises of the Debtor contained in the Debtor Documents, whether
or not now or hereafter evidenced by any note, instrument or other writing.
4. REPRESENTATIONS AND WARRANTIES. To induce the Creditor to enter
into this Agreement, any and all of the representations and warranties made by
the Debtor in the other Debtor Documents are incorporated herein by reference,
and the Debtor further represents, warrants and agrees as follows:
(a) The Debtor has full right, power, authority and capacity to
enter into and perform this Agreement; and this Agreement has been duly entered
into and delivered and constitutes a legal, valid and binding obligation of the
Debtor enforceable in accordance with its terms.
(b) The Debtor has good and marketable title to the Debtor's
Collateral, and the Collateral is not subject to any lien, charge, pledge,
encumbrance, claim or security interest other than the security interests
created by this Agreement.
(c) The Debtor keeps the Debtor's Inventory at the locations set out
on Schedule 1 attached to this Agreement.
(d) The books and records with respect to the Debtor's Accounts
Receivable are kept at the Debtor's chief place of business in Louisville,
Kentucky.
(e) The Debtor's chief place of business is located at [INSERT
ADDRESS OF BORROWER'S CHIEF PLACE OF BUSINESS].
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(f) The Collateral is used and will be used for business use
only.
(g) The registered office of the Debtor's registered agent in
Kentucky is located in Jefferson County, Kentucky.
5. DURATION OF SECURITY INTERESTS. The Creditor, its successors and
assigns, shall hold the security interests created hereby upon the terms of
this Agreement, and this Agreement shall continue until the Note has been paid
in full, the other Secured Obligations have been paid, performed, executed, or
satisfied in their entirety, and no commitment to lend or extend credit which
is intended to be secured hereby remains outstanding. After payment of any part
of the Secured Obligations, the Creditor may, at its option, retain all or any
portion of the Collateral as security for any remaining Secured Obligations and
retain this Agreement as evidence of such security. The security interests
granted hereunder shall not be impaired or affected by any renewals or
extensions of time for payment of any of the Secured Obligations, or by release
of any party liable on the Secured Obligations; by any acquisition, release or
surrender of other security, collateral or guaranty; by delay in enforcement of
payment of any of the Secured Obligations; or by delay in enforcement of any
security.
6. CERTAIN NOTICES. The Debtor shall notify the Creditor of any and
all changes of location of the Debtor's chief place of business and of the
registered office of the Debtor's registered agent in Kentucky, and of the
books and records with respect to any Accounts Receivable and of the location
of any other of the Collateral at least ten (10) days prior to effecting any
such change.
7. COVENANT NOT TO DISPOSE OF OR IMPAIR COLLATERAL. The Debtor shall
not, without the prior written consent of the Creditor, sell, transfer or
otherwise dispose of the Collateral, or any part thereof or interest therein,
except (a) collections of Accounts Receivable permitted under this Agreement,
and (b) sale of Inventory in the ordinary course of business (which shall not
include any transfer in complete or partial satisfaction of indebtedness), and
(c) otherwise as permitted by the Debtor Documents. The Debtor shall not permit
any of the Collateral to be levied upon under any legal process, nor permit
anything to be done that may impair the value of the Collateral or the security
intended to be provided by this Agreement.
8. DEFAULT. At the option of the Creditor, the happening of any of the
following events shall constitute a default under this Agreement (an "Event of
Default"):
(a) Failure of the Debtor to pay in full when due any Secured
Obligation, or any installment of any Secured Obligation.
(b) The occurrence of any default or event of default under the Note
or any other of the Debtor Documents or any other obligation, instrument or
agreement secured by this Agreement, or under any other instrument or agreement
providing security for the Secured Obligations, and the expiration of any
applicable cure period (if any).
(c) Failure of the Debtor to keep or perform or observe or comply
with any term, obligation or provision of (1) this Agreement (other than those
contained or referenced in any other subparagraph of this Section 8), which
failure has not been fully corrected within three (3) days after
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written notice has been given to the Debtor of such failure; or (2) any other
of the Debtor Documents and the expiration of any applicable cure period, if
any.
(d) Any warranty, representation or other statement of fact
contained in any of the Debtor Documents made or otherwise furnished to the
Creditor by or on behalf of the Debtor pursuant to or in connection with any of
the Secured Obligations proves to be false or misleading in any material
respect or omits a material fact, whether or not made with knowledge, at the
time it was made.
(e) Loss, theft, damage, or destruction of any material part of
the Collateral if the loss is not fully insured against.
(f) Encumbrance of any of the Collateral, or the making of a
levy, seizure or attachment thereof or thereon, which is not permitted under
the Debtor Documents, and which has not been cured to the Creditor's
satisfaction within fifteen (15) days after notice that it has occurred.
(g) The sale or other disposition of the Collateral or any
interest therein, or the creation of any lien or other encumbrance on the
Collateral, either of which is not permitted under this Agreement and is
without the prior written consent of the Creditor.
(h) The Collateral becomes the subject matter of litigation
which could, in the good faith opinion of the Creditor, result in substantial
impairment or loss of the security interests intended to be provided by this
Agreement, which has not been successfully resolved to the Creditor's
satisfaction within fifteen (15) days after notice of the litigation and the
Creditor's desire for a resolution.
(i) If the Debtor shall fail to observe, perform or comply with
the terms, obligations, covenants, agreements, conditions or other provisions
of any agreement, document or instrument, other than this Agreement and the
other Debtor Documents, which the Debtor has entered into with the Creditor.
(j) If the Debtor shall (1) have an order of relief entered in
any proceeding filed by the Debtor under the federal bankruptcy laws (as in
effect on the date of this Agreement or as they may be amended from time to
time); (2) admit an inability to pay debts generally as they become due; (3)
become insolvent in that total assets are in the aggregate worth less than all
liabilities, or the Debtor is unable to pay debts generally as they become due;
(4) make a general assignment for the benefit of creditors; (5) file a
petition, or admit (by answer, default or otherwise) the material allegations
of any petition filed against the Debtor in bankruptcy under the federal
bankruptcy laws (as in effect on the date of this Agreement or as they may be
amended from time to time), or under any other law for the relief of debtors,
or for the discharge, arrangement or compromise of debts; or (6) consent to the
appointment of a receiver, conservator, trustee or liquidator of all or any
part of the Debtor's assets.
(k) If a petition shall have been filed against the Debtor in
proceedings under the federal bankruptcy laws (as in effect on the date of this
Agreement, or as they may be amended from time to time), or under any other
laws for the relief of debtors, or for the discharge, arrangement or compromise
of debts, or an order shall be entered by any court of competent jurisdiction
appointing
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a receive, conservator, trustee or liquidator or all or part of the Debtor's
assets, and such petition or order is not dismissed or stayed within thirty
(30) consecutive days after entry thereof.
(l) If the Debtor or any Person affiliated with the Debtor takes any
action that is intended to result in the termination, dissolution or liquidation
of the Debtor.
(m) If a final judgment or judgments for the payment of money in
excess of the sum of Two Hundred Thousand Dollars ($200,000.00) in the
aggregate, or with respect to property with a value in excess of such amount,
shall be rendered against the Debtor and such judgment or judgments shall remain
unsatisfied for a period of thirty (30) consecutive days after the entry thereof
and within that thirty (30) days has not been (a) stayed pending appeal, or (b)
discharged.
(n) If there should be any material adverse change in the financial
condition of the Debtor, as determined in the Creditor's reasonable discretion,
from the financial condition of the Debtor on the date of this Agreement, and
such adverse change is not fully corrected to Creditor's reasonable satisfaction
within thirty (30) days after notice with respect thereto from the Creditor.
9. REMEDIES. Upon any Event of Default, the Creditor may at its option
declare the Note and the other Secured Obligations to be immediately due and
payable; and, in addition to that right, and in addition to exercising all
other rights or remedies, the Creditor may proceed to exercise with respect to
the Collateral all rights, options and remedies of a secured party upon default
as provided for under the Uniform Commercial Code. The rights of the Creditor
upon an Event of Default shall include, without limitation, any and all rights
and remedies in any and all other documents, instruments, agreements and other
writings between the Creditor and the Debtor, all rights and remedies as
provided by law, in equity or otherwise, and in addition thereto, the
following:
(a) The right to require the Debtor to assemble the Collateral and
the books and records with respect to Accounts Receivable and make them
available to the Creditor at a place or places to be designated by the Creditor
which is reasonably convenient to the Debtor and the Creditor.
(b) The right to require the Debtor to store all or any part of the
Debtor's Inventory, at the Debtor's own cost and risk, on behalf of the Creditor
after the Creditor has taken possession of such Inventory. Storage shall be in
such manner as to prevent any deterioration of such Inventory, and shall be for
a reasonable time pending the sale or other disposition of such Inventory.
(c) The right to sell the Collateral at public or private sale in
one or more lots in accordance with the Uniform Commercial Code. The Creditor
may bid upon and purchase any or all of the Collateral at any public sale
thereof, and shall be entitled to apply the unpaid portion of the Secured
Obligations as a credit against the purchase price. The Creditor's purchase of
all or any of the Collateral shall extinguish the Debtor's rights under section
9-506 of the Uniform Commercial Code upon application of the unpaid portion of
the Secured Obligations. The Creditor shall be entitled to apply the proceeds of
any such sale to the satisfaction of the Secured Obligations and to expenses
incurred in realizing upon the Collateral in accordance with the Uniform
Commercial Code.
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(d) The right to notify the account debtors on all or any part
of the Debtor's Accounts Receivable of the Creditor's interest therein and to
require such account debtors to begin making payments directly to the Creditor
regardless of whether the Debtor was previously making collections on all or
any part of the Debtor's Accounts Receivable. The Creditor shall have the right
to proceed against any such account debtors in its own name, or in the name of
the Debtor (as appropriate) with or without the consent of the Debtor. The
Creditor may retain any such payments or collections and apply them to the
satisfaction of the Secured Obligations and to expenses incurred in collection,
all in accordance with the Uniform Commercial Code.
(e) The right to recover the reasonable expenses of taking
possession of any of the Collateral that may be reduced to possession,
preparing the Collateral for sale, selling the Collateral, collecting all or
any part of the Debtor's Accounts Receivable, and other like expenses.
(f) The right to recover all of the Creditor's expenses of
collection, including, without limitation, court costs and reasonable
attorneys' fees and disbursements incurred in realizing upon the Collateral or
enforcing or attempting to enforce any provision of this Agreement.
(g) The right to retain the Collateral and become the owner
thereof, in accordance with the provisions of the Uniform Commercial Code.
(h) The right to proceed by appropriate legal process at law or
in equity to enforce any provision of this Agreement or in aid of the execution
of any power of sale, or for foreclosure of the security interests of the
Creditor, or for the sale of the Collateral under the judgment or decree of any
court.
(i) The right to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the same.
(j) The right to (1) possession of any and all of the Warehouse
Receipts, (2) notify any of the Warehousemen holding any of the Debtor's
Inventory that a default has occurred and that the Creditor, to the exclusion
of the Debtor, is entitled to direct release and delivery of the Inventory, and
(3) otherwise cause the Warehousemen to store the Inventory as the Creditor's
agent.
10. CUMULATIVE REMEDIES. The rights and remedies of the Creditor shall
be deemed to be cumulative, and any exercise of any right or remedy shall not
be deemed to be an election of that right or remedy to the exclusion of any
other right or remedy. Notwithstanding the foregoing, the Creditor shall be
entitled to recover by the cumulative exercise of all remedies no more than the
sum of (a) the Secured Obligations at the time of exercise of remedies, plus
(b) the costs, fees and expenses the Creditor is otherwise entitled to recover.
11. WAIVERS. The Debtor acknowledges that this Agreement involves the
grant of multiple security interests, and the Debtor hereby waives, to the
extent permitted by applicable law, (a) any requirement of marshaling assets or
proceeding against Persons or assets in any particular order, and (b) any and
all notices of every kind and description which may be required to be given by
any statute or rule of law and any defense of any kind which the Debtor may now
or hereafter have with respect to the rights of the Creditor with respect to
the Collateral under this Agreement.
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12. COLLECTIONS FROM ACCOUNTS RECEIVABLE.
(a) At any time when the Creditor may exercise remedies under
Section 9 of this Agreement, the Creditor shall have the right to notify
account debtors obligated on any or all Accounts Receivable to make payments
directly to the Creditor.
(b) Until the Creditor requests that account debtors of Accounts
Receivable be notified of the Creditor's security interest created at a time
when the Creditor may exercise remedies under Section 9 of this Agreement, the
Debtor shall continue to collect payments on the Debtor's Accounts Receivable
and use the proceeds thereof to reduce the principal amount of the Note, as
provided therein. In any event, if any Event of Default has occurred and is
continuing, the Debtor may not use the proceeds from payments on Accounts
Receivable to satisfy any indebtedness to any Person other than the Creditor.
If the Debtor collects payments on any Accounts Receivable after an Event of
Default has occurred and while it is continuing, the Debtor shall hold the
proceeds received from that collection as a constructive trust for the
Creditor and shall turn over such proceeds to the Creditor immediately upon
demand in the identical form received, if so requested by the Creditor. In the
event of such payment, the Creditor shall credit the proceeds as payment of
the Secured Obligations first to costs or penalties if any, second to
interest, and then to principal. Any credit given to the Debtor for proceeds
in form other than cash shall be conditional upon final payment to the Debtor
in cash or solvent credit of the items, and if any item is not paid the amount
of any credit given for it shall be charged to the Debtor whether or not the
item is returned, and such amount shall be a part of the obligations secured
by this Agreement.
(c) The Debtor shall have no power to, and shall not, waive,
compromise or discount any Accounts Receivable, without the prior written
consent of the Creditor, except for (1) ordinary trade discounts and allowances
for payment within thirty days of the date of invoice or billing, and (2)
discounts or allowances in the ordinary course of collecting Accounts
Receivable.
(d) If any Account Receivable shall be evidenced by a promissory
note, trade acceptance or other instrument with an original principal balance
of One Thousand Dollars ($1,000.00) or more, the Debtor (as appropriate) shall
immediately deliver such instrument to the Creditor, appropriately endorsed to
the Creditor's order. The Debtor authorizes the Creditor to endorse same on the
Debtor's behalf and hereby waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect thereto.
13. THE CREDITOR AS AGENT. The Debtor hereby irrevocably constitutes
the Creditor as the Debtor's agent and attorney-in-fact at any time during any
period when the Creditor may exercise the remedies set forth in Section 9 of
this Agreement, to (a) proceed against account debtors obligated on Accounts
Receivable in the Debtor's name or in the Creditor's name, and (b) sign and
endorse all checks, drafts and other instruments in payment of Accounts
Receivable, and (c) perform all such other acts with respect to Accounts
Receivable as the Creditor may in its discretion deem necessary to effectuate
the security intended to be granted in this Agreement.
14. SPECIAL COLLECTION PROCEDURE. Upon the Creditor's demand at any
time when the Creditor may exercise remedies under Section 9 of this Agreement,
the Debtor shall forthwith, upon receipt of all checks, drafts, cash and other
remittances in payment or on account of Accounts Receivable or for the sale of
Inventory by the Debtor, deposit the same in a special bank account
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over which the Creditor alone, to the exclusion of the Debtor, has the power of
withdrawal. The funds in such account shall be held by the Creditor for
application toward the Secured Obligations. Such proceeds paid on Accounts
Receivable shall be deposited in precisely the form received, except for the
endorsement of the Debtor where necessary to permit collection of items, which
endorsement the Debtor agrees to make and which the Creditor is also hereby
authorized by to make in the Debtor's name and on the Debtor's behalf as
attorney-in-fact. Pending such deposit, the Debtor agrees that the Debtor will
not commingle any such checks, drafts, cash and other remittances with any
other funds or property, but will hold them separate and apart therefrom in
express trust for the Creditor until deposited in that special account. The
Creditor will, once each day, apply the whole or any part of the collected
funds on deposit in such special account against the principal and/or interest
of the Note, the order and method of such application being in the sole
discretion of the Creditor. Any portion of the funds in the special account
which the Creditor elects not to apply as provided in the preceding sentence
may be paid over by the Creditor to the Debtor or may be retained in the
special account, at the Creditor's sole discretion, as continuing security and
in which the Debtor hereby grants to the Creditor a security interest for all
the Secured Obligations.
15. BOOKS AND RECORDS. The Debtor shall maintain books and records with
respect to Accounts Receivable in form and manner reasonably satisfactory to
the Creditor, and the Creditor shall have the right during business hours with
reasonable notice to inspect any and all of the business properties, premises
or books and records of the Debtor relating to Accounts Receivable or other
Collateral or the proceeds thereof. The Debtor further agrees from time to time
to furnish such reports, data and financial statements with respect to the
Collateral as the Creditor may reasonably request from time to time.
16. INSURANCE. The Debtor, at the Debtor's cost and expense, shall
insure the Debtor's business and all of the Debtor's insurable properties with
insurance policies in such form, with such types of coverage, to such extent,
against such liabilities and hazards (including, without limitation,
environmental hazards), in such amounts of coverage and with such deductibles
as the Creditor may request or direct, and not less than those carried by
prudent businesses similarly situated, but in any event insuring against such
liabilities and hazards and with such coverages and deductibles as are provided
in the Debtor's insurance in effect on the date of this Agreement, and in any
event in amounts of coverage not less than the insurable value of the property
insured.
17. CERTAIN OBLIGATIONS REGARDING COLLATERAL.
(a) The Debtor shall keep and maintain the Debtor's Inventory in
good condition and repair and under adequate condition of storage to prevent
its deterioration or depreciation in value.
(b) The Debtor shall keep the Collateral free and clear of any
and all liens other than the security interests created in favor of the
Creditor under this Agreement or permitted by the Debtor Documents, and shall
declare and pay any and all fees, assessments, charges and taxes allocable to
the Collateral, or which might result in a lien against the Collateral if left
unpaid unless the Debtor at the Debtor's own expense is contesting the validity
or amount thereof in good faith by an appropriate proceeding timely instituted
which shall operate to prevent the collection or satisfaction of the lien or
amount so contested. If the Debtor fails to pay such amount and is not
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contesting the validity or amount thereof in accordance with the preceding
sentence, the Creditor may, but is not obligated to, pay such amount, and such
payment shall be deemed conclusive evidence of the legality or validity of such
amount. The Debtor shall promptly reimburse the Creditor for any and all
payments made by the Creditor in accordance with the preceding sentence, and
until reimbursement, such payments shall be part of the Secured Obligations.
(c) The Debtor shall keep its Inventory only at the locations
set out on Schedule 1 attached to and incorporated into this Agreement.
(d) If the Debtor fails to provide insurance pursuant to Section
16 of this Agreement, the Creditor may, but is not obligated to, pay for such
insurance after first notifying the Debtor of the Creditor's intent to pay it.
The Debtor shall promptly reimburse the Creditor for any payments made pursuant
to this subparagraph, and until reimbursement, such payments shall be a part of
the Secured Obligations.
18. USE AND INSPECTION OF COLLATERAL. The Debtor shall not use the
Collateral in violation of any statute or ordinance, and the Creditor shall
have the right, at reasonable hours, to inspect the Collateral at the premises
of the Debtor or wherever the Collateral may be located.
19. NOTICE.
(a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least five (5) business days before the time of sale, disposition or other
event or thing giving rise to the requirement of notice.
(b) Except as provided in subsection (c) below, all notices or
communications under this Agreement shall be in writing and shall be
hand-delivered, sent by courier, or mailed to the parties addressed as follows,
and any notice so addressed and (1) hand-delivered, shall be deemed to have
been given when so delivered, or (2) mailed by registered or certified mail,
return receipt requested, shall be deemed to have been given when mailed, or
(3) delivered to a recognized small package overnight courier service to the
address of the intended recipient with shipping prepaid, shall be deemed to
have been given when so delivered to such courier:
(1) If to the Debtor: Taco Bell National Purchasing Coop, Inc.
----------------------------------------
----------------------------------------
(2) If to the Creditor: KFC National Purchasing Cooperative, Inc.
----------------------------------------
----------------------------------------
(c) The Debtor and the Creditor may at any time, and from time
to time, change the address or addresses to which notice shall be mailed by
written notice setting forth the changed addressed or addresses.
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20. FURTHER ASSURANCE. The Debtor shall sign from time to time such
financing statements and other documents and instruments and take such other
actions as the Creditor may request from time to time to more fully create,
perfect, continue, maintain or terminate the security interests in the
Collateral intended to be created in this Agreement.
21. MISCELLANEOUS.
(a) Failure by the Creditor to exercise any right shall not be
deemed a waiver of that right, and any single or partial exercise of any right
shall not preclude the further exercise of that right. Every right of the
Creditor shall continue in full force and effect until such right is
specifically waived in a writing signed by the Creditor.
(b) If any part, term or provision of this Agreement is held by
any court to be prohibited by any law applicable to this Agreement, the rights
and obligations of the parties shall be construed and enforced with that part,
term or provision enforced to the greatest extent allowed by law, or if it is
totally unenforceable, as if this Agreement did not contain that particular
part, term or provision.
(c) The headings in this Agreement have been included for ease
of reference only, and shall not be considered in the construction or
interpretation of this Agreement.
(d) This Agreement shall inure to the benefit of the Creditor,
its successors and assigns, and all obligations of the Debtor shall bind the
Debtor's successors and assigns.
(e) To the extent allowed under the Uniform Commercial Code,
this Agreement shall in all respects be governed by and construed in accordance
with the laws of the Commonwealth of Kentucky.
(f) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. No change, modification,
addition or termination of this Agreement shall be enforceable unless in
writing and signed by the party against whom enforcement is sought.
(g) This Agreement may be signed by each party upon a separate
copy, and in such cases one counterpart of this Agreement shall consist of
enough of such copies to reflect the signature of each party.
(h) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement or the terms thereof to produce or account for
more than one such counterpart.
(i) The Debtor consents to one or more actions being instituted
and maintained in the Jefferson County, Kentucky, Circuit Court to enforce this
Agreement and/or one or more of the other debtor documents, and waives any
objection to any such action based upon lack of personal or subject matter
jurisdiction or improper venue. The Debtor agrees that any process or other
legal summons in connection with any such action or proceeding may be served by
mailing a copy thereof by certified mail, or any substantially similar form of
mail, addressed to the Debtor as provided in Section 19 above.
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(j) The Debtor acknowledges that the Debtor has received a copy
of this Agreement and each of the other debtor documents, as fully executed by
the parties thereto. The Debtor acknowledges that the Debtor (a) has READ THIS
AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS CAUSED SUCH DOCUMENTS TO BE
EXAMINED BY THE BORROWER'S REPRESENTATIVES OR ADVISORS; (b) is thoroughly
familiar with the transactions contemplated in this Agreement and the other
debtor documents; and (c) has had the opportunity to ask such questions to
representatives of the Creditor, and receive answers thereto, concerning the
terms and conditions of the transactions contemplated in this Agreement and the
other debtor documents as the Debtor deems necessary in connection with the
Debtor's decision to enter into this agreement.
IN WITNESS WHEREOF, the Debtor and the Creditor have executed and
delivered this Agreement as of the date set out in the preamble hereto, but
actually on the dates set forth below.
DEBTOR:
TACO BELL NATIONAL PURCHASING COOP,
INC.
By:______________________________________
Title:____________________________________
Date:____________________________________
CREDITOR:
KFC NATIONAL PURCHASING
COOPERATIVE, INC.
By:______________________________________
Title:____________________________________
Date:____________________________________
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APPENDIX B
OPERATING AGREEMENT
FOR
UNIFIED FOODSERVICE PURCHASING COOP, LLC
This is an Operating Agreement dated as of __________, 1999, among the
Persons (as defined below) who have executed ANNEX A attached to this Agreement
(each a "MEMBER" and collectively, the "MEMBERS").
RECITALS
The KFC, Taco Bell and Pizza Hut restaurant systems are each part of
Tricon Global Restaurants, Inc. (together with all its Affiliates,
"Tricon"). The Tricon restaurant system includes restaurants and other
outlets which are both franchised and operated by Tricon and its
Affiliates. The KFC National Purchasing Cooperative, Inc., doing
business as the FoodService Purchasing Cooperative, Inc. (the "KFC
Coop"), has well established purchasing programs for KFC and Taco Bell
franchisees. The KFC Coop shall transfer its Taco Bell operations to a
new purchasing cooperative for Taco Bell franchisees, the Taco Bell
National Purchasing Coop, Inc. (the "Taco Bell Coop"), organized by Taco
Bell franchisees and their advisory counsel, FRANMAC. A new purchasing
cooperative for Pizza Hut franchisees, the Pizza Hut National Purchasing
Coop, Inc. (the "Pizza Hut Coop"), has been organized by Pizza Hut
franchisees and their organization, the IPHFHA. The KFC Coop, the Taco
Bell Coop and the Pizza Hut Coop (the "Concept Coops") are the Members.
Tricon or an affiliate of Tricon is a member of each of the Concept
Coops.
ARTICLE 1 - FORMATION
The Members hereby form a limited liability company (the "COMPANY")
pursuant to the Kentucky Limited Liability Company Act, effective as of the
filing of the Company's Articles of Organization with the Kentucky Secretary of
State. The Members hereby ratify and approve the filing of the Company's
Articles of Organization, the receipt of the form of which each Member hereby
acknowledges. The Members hereby acknowledge that they were Members of the
Company effective as of the time of the filing of the Company's Articles of
Organization. A duly authorized officer of the Company shall from time to time
execute or cause to be executed all such certificates or other documents or
cause to be done all such filing, recording, publishing or other acts as may be
necessary or appropriate to comply with the requirements for the formation and
operation of a limited liability company under the Act. The rights and duties
of the Board of Directors, the Officers and the Members shall be as provided in
the Act, except as modified by this Agreement. The Company shall be qualified
to do business in such states as the Board of Directors from time to time deems
appropriate.
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ARTICLE 2 - NAME
The business of the Company shall be conducted under the name "Unified
FoodService Purchasing Coop, LLC."
ARTICLE 3 - DEFINITIONS
The following terms and phrases used in this Agreement shall have the
following meanings:
"ACT" shall mean the Kentucky Limited Liability Company Act, KRS
Chapter 275.
"AFFILIATE" or a Person "AFFILIATED WITH" a Member, a shareholder,
partner or member of any Member, or other specified Person (collectively
referred to as the "SPECIFIED PERSON") shall mean (i) a Person that directly,
or indirectly through one or more intermediaries, or in combination with any
other Member, or other Specified Person, controls or is controlled by, or is
under the control of the Member or other Specified Person; or (ii) a Person of
which the Member or other Specified Person is a director, officer, employee,
agent or partner or is the beneficial owner of 10% or more of any class of
equity security or interest. The term "CONTROL" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership, by contract or otherwise.
"AGREEMENT" shall mean this Operating Agreement, as amended, modified
or supplemented from time to time.
"BOARD OF DIRECTORS" shall mean the Company's Board of Directors as
provided for in Article 14.
"CAPITAL ACCOUNT" shall mean the individual account maintained for each
Member by the Company, calculated pursuant to paragraph 8.5.
"CAPITAL CONTRIBUTION" shall mean the money and the fair market value
of property (net of liabilities assumed by the Company or to which the property
is subject) contributed to the Company by a Member, and as set forth on ANNEX
A.
"CHARTER DOCUMENTS" shall mean the certificate or articles of
incorporation and bylaws of the Concept Coops.
"CODE" or "IRC" shall mean the Internal Revenue Code of 1986, as
amended, modified or rescinded from time to time, or any similar provision of
succeeding law.
"GOODS" shall mean food, packaging, supplies, equipment, and other
products and services used, sold or consumed by operators of quick service
restaurants including KFC, Taco Bell, and Pizza Hut restaurants and outlets.
"INCOME AND LOSS" shall mean, respectively, for each fiscal year or
other period, an amount equal to the Company's Taxable income or Tax Loss for
such year or period (a), except that for this
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purpose (i) all items of income, gain, deduction or loss required to be
separately stated by Code Section 703(a)(1) shall be included in taxable income
or loss; (ii) tax exempt income shall be added to taxable income or loss; (iii)
any expenditures described in Code Section 705(a)(2)(B) (or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation ss.
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing taxable
income or loss shall be subtracted; and (iv) taxable income or loss shall be
adjusted to reflect any item of income or loss specifically allocated in
Article 10.
"INTEREST" shall mean the entire ownership interest (which may, either
for a Member's Capital Account or for a Member's share of Taxable Income, Tax
Losses or Net Cash Flow, be expressed as a percentage) of a Member in the
Company, including the rights and obligations of the Member under this
Agreement and the Act.
"LOAN AGREEMENTS" shall mean the Loan Agreements evidencing and setting
forth the terms and conditions of the working capital loans to the Company made
by the Members in the initial amounts reflected on ANNEX A.
"MANAGEMENT AGREEMENTS" shall mean the Management Agreements of even
date herewith between the Company and each of its Members, as such agreements
may from time to time be amended as permitted hereunder.
"MANAGER" shall mean the Board of Directors.
"NET CASH FLOW" shall mean, with respect to any fiscal year, all cash
revenues of the Company from business operations during that period (including,
without limitation, interest or other earnings on the funds of the Company)
less the sum of the following to the extent made from those cash revenues:
(i) All principal and interest payments on any indebtedness of
the Company;
(ii) All cash expenses incurred incident to the operation of the
Company's business; and
(iii) Funds set aside as reserves for contingencies, working
capital, debt service, taxes, insurance or other costs and expenses incident to
the conduct of the Company's business which the Board of Directors deems
reasonably necessary or appropriate.
"PATRONAGE" shall mean the amount of direct and indirect transactions
between the Company and the Concept Coops and restaurant operators which
qualifies as patronage in the Charter Documents.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, joint stock company, trust, association, unincorporated
entity, or any division thereof.
"PURCHASING VOLUME" means the amount of transactions for Goods
initiated or effected directly or indirectly through the Company whether or not
qualifying as Patronage.
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"TAXABLE INCOME" and "TAX LOSSES," respectively, shall mean the net
income or net losses of the Company as determined for federal income tax
purposes, and all items required to be separately stated by IRC ss.ss. 702 and
703 and the Treasury Regulations promulgated thereunder.
ARTICLE 4 - BUSINESS OF THE COMPANY
4.1 GOODS AND SERVICES. The Company will combine the purchasing volume
for Goods within and across Tricon's KFC, Taco Bell and Pizza Hut concepts in
order to achieve the lowest possible store delivered costs for restaurant
operators. The Company will manage and operate purchasing programs for each of
the Concept Coops consistent with the terms of Management Agreements between
the Company and each Concept Coop. The Company will negotiate the lowest
possible sustainable prices for Goods from suppliers approved by Tricon and its
Affiliates as franchisors for sale either through the Company or directly by
the supplier to approved distributors selected by the Members and the
restaurant operators represented by the Members. The Company will also assist
the Members and restaurant operators in negotiating and monitoring freight and
distribution arrangements. The Company will provide such other services for
Members and restaurant operators provided for in the Management Agreements. The
Company and Tricon have entered into a Tricon Purchasing Cooperative Agreement
of even date herewith concerning Tricon's commitment to the purchasing programs
of the Company and the Concept Coops, Tricon's supplier and distributor
processes, aspects of the relationships between Tricon and suppliers and
distributors, and coordination of the Company's purchasing activities with the
marketing, promotion, and other programs and projects of Tricon and its
Affiliates as franchisors.
4.2 OPERATING ASSETS AND LIABILITIES. The Company shall acquire certain
operating assets and leaseholds, assume certain operating liabilities and
obligations and employ certain personnel of the KFC Coop pursuant to the terms
of an Asset Contribution and Liability Assumption Agreement of even date
herewith between the Company and the KFC Coop.
4.3 MEMBER MATTERS. As may be more specifically provided in the
Management Agreements (a) the operation of the purchasing program of each
Member shall be conducted by the Company consistent with annual business plans
and budgets approved by the Company and the Member, (b) each Member will be
responsible for making available to the Company, pursuant to the Loan
Agreements and Management Agreements, the capital and working capital necessary
for conducting the purchasing program for the Member in a financially sound
manner, and (c) each Member shall indemnify and hold the Company and each other
Member harmless for any operating or other losses or liabilities associated
with the purchasing and other programs of the Member. Nothing in this Agreement
shall be construed to inhibit or prevent Members from competing with other
Members or their affiliates in any line of commerce or any particular market.
Neither a Member nor the Company shall have any authority to hold itself out as
a general agent of the Company in any other business or activity.
4.4 TAX TREATMENT; TAX MATTERS PARTNER.
(a) It is the intention of the Members that the Company be
treated as a partnership for federal, state and local income tax purposes, and
the Members agree not to take any position or make any election, in a tax
return or otherwise, inconsistent with such treatment; provided, however,
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the filing of federal, state and local tax returns shall not be construed to
create a partnership (other than for tax purposes) among the Members.
(b) The KFC Coop shall have the authority to (i) make any and
all elections for federal, state, and local tax purposes; (ii) to the extent
provided in IRC ss.ss. 6221 through 6231, represent the Company and the Members
before taxing authorities or courts of competent jurisdiction in tax matters
affecting the Company and the Members; and (iii) file any tax returns and to
execute any agreements or other documents relating to or affecting such tax
matters, including agreements or other documents that bind the Members with
respect to such tax matters or otherwise affect the rights of the Company and
the Members. The KFC Coop is specifically authorized to act as the "Tax Matters
Partner" under the IRC and in any similar capacity under state or local law.
4.5 CODE OF BUSINESS CONDUCT. The Members acknowledge and agree that
the business of the Company shall be conducted in accordance with a Code of
Business Conduct including trade practice principles and a conflict of interest
policy. The initial Code of Business Conduct is attached as Annex B to this
Agreement. The Code of Business Conduct may be amended from time to time by the
Board of Directors.
ARTICLE 5 - THE MEMBERS
5.1 INITIAL MEMBERS. The names and business addresses of the initial
Members are set forth on ANNEX A.
5.2 ADDITIONAL MEMBERS. The Company may admit additional Members from
time to time at the election of the Board of Directors, upon the terms and
conditions determined by the Board of Directors. ANNEX A shall be amended to
reflect any changes in the Company's membership. A prerequisite to admission to
membership in the Company shall be the written agreement by the additional
Member to be bound by the terms of this Agreement.
5.3 NO LIABILITY OF MEMBERS. No Member shall have personal liability
for the obligations or liabilities of the Company. Except as otherwise
specifically provided in this Agreement, or a Loan Agreement or a Management
Agreement, no Member, after admission to the Company, shall be obligated to
contribute additional funds or property, or loan money, to the Company.
5.4 TITLE TO PROPERTY. All real and personal property owned by the
Company shall be owned by the Company as an entity and no Member shall have any
ownership interest in such property in his individual name or right, and each
Member's interest in the Company shall be personal property for all purposes.
Except as otherwise provided in this Agreement, the Company shall hold all of
its real and personal property in the name of the Company and not in the name
of any Member.
5.5 COOPERATIVE BASIS. Each Concept Coop agrees at all times to operate
on a cooperative basis. Each Concept Coop acknowledges and agrees that its
Charter Documents shall at all times provide that all patronage sourced net
income of the Concept Coop not retained to provide working capital and
appropriate reserves may be distributed to the Concept Coop's members as
patronage dividends pursuant to IRC ss.ss. 1381 through 1388. No Concept Coop
shall amend or
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alter the provisions of its Charter Documents concerning patronage without the
consent of the Company's Board of Directors.
5.6 REMOVAL OF MEMBERS. A Member may only be removed from membership in
the Company upon action of the Board of Directors. Such removal may be for any
or no reason whatsoever. The Board of Directors shall provide the removed
Member a written statement of the reasons for removal. Upon such removal, the
Company shall purchase the removed Member's Interest at the Contract Price
determined in accordance with paragraph 16.4 below. The Contract Price shall be
paid in accordance with paragraph 16.5 below. The closing of the purchase of
the removed Member's Interest shall occur within 10 days after a Member's
removal, or as soon as reasonably possible after determination of the Contract
Price. Any loans to or from the Company and the removed Member, pursuant to a
Loan Agreement or otherwise, shall be satisfied in full at the time of the
closing. The Management Agreement between the Company and the Member shall be
terminated at the time of the closing. Removal of a Member shall not limit the
obligations of the Member as described in the Management Agreements and Section
4.3(c) this Agreement to indemnify and hold the Company and each other Member
harmless for any operating or other losses or liabilities associated with the
purchasing and other programs of the Member.
ARTICLE 6 - PRINCIPAL OFFICE
The principal office and place of business of the Company shall be
located as designated from time to time by the Board of Directors. The initial
principal office and place of business of the Company shall be located at 950
Breckinridge Lane, P.O. Box 32033, Louisville, Kentucky 40232. The Company may
have such other or additional offices as the Board of Directors deems
advisable.
ARTICLE 7 - TERM
The term of the Company shall begin on the date the Company's Articles
of Organization are filed with the Kentucky Secretary of State, and shall
continue until dissolution in accordance with the terms of this Agreement.
ARTICLE 8 - CAPITAL CONTRIBUTIONS AND LOANS
8.1 INITIAL CAPITAL CONTRIBUTIONS. The Members shall make the initial
Capital Contributions set forth on ANNEX A.
8.2 ADDITIONAL CONTRIBUTIONS. The Members shall make additional Capital
Contributions at such times and in such amounts as may be called for by the
Board of Directors in a resolution which has been ratified by each of the
Members. ANNEX A shall be amended to reflect any additional Capital
Contributions.
8.3 MEMBER LOANS. Each of the Members shall make the loans to the
Company and make available to the Company the revolving credit facilities in and
up to the amounts set forth on ANNEX A as evidenced by the Loan Agreements. Upon
call from the Board of Directors, each of the Members shall be obligated to make
additional loans to the Company to fund operating and development costs related
specifically to the purchasing program for such Member and the Company
generally. All loans shall be made within 30 days after election by the Board of
Directors to require such loans, or at such other time as is specified by the
Board of Directors.
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8.4 INTEREST ON CAPITAL. No Member shall be paid interest on any
Capital Contribution or Capital Account.
8.5 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained by
the Company for each Member in accordance with Treas. Reg. ss.
1.704-1(b)(2)(iv). There shall be credited to each Member's Capital Account:
(i) the amount of money contributed by such Member to the Company; (ii) the
fair market value of property contributed by such Member to the Company (net of
liabilities secured by such contributed property that the Company is considered
to assume or take subject to under IRC ss. 752); and (iii) allocations to such
Member of Company income and gain (or items thereof), including income and gain
exempt from tax and income and gain, as computed for book purposes, in
accordance with Treas. Reg. ss. 1.704-1(b)(2)(iv)(g). Each Member's Capital
Account shall be decreased by: (i) the amount of money distributed to such
Member by the Company; (ii) the fair market value of property distributed to
such Member by the Company (net of liabilities secured by such distributed
property that such Member is considered to assume or take pursuant to IRC ss.
752); (iii) allocations to such Member of expenditures of the Company described
in IRC ss. 705(a)(2)(B); and (iv) allocations of loss and deduction (or items
thereof) including loss or deduction, computed for book purposes, as described
in Treas. Reg. ss. 1.704-1(b)(2)(iv)(g).
8.6 WITHDRAWAL AND RETURN OF CAPITAL. Except as expressly provided in
this Agreement, including paragraph 9.1 with respect to distributions of Net
Cash Flow, no Member shall be entitled to withdraw any part of such Member's
Capital Contributions or Capital Account, or to receive any distribution from
the Company.
8.7 REVALUATION OF COMPANY PROPERTY. If there shall occur (i) an
acquisition of an Interest from the Company for more than a de minimis Capital
Contribution, or (ii) a distribution (other than a de minimis distribution) to
a Member in redemption of an Interest, then the Company shall revalue the
assets of the Company at their then fair market value and adjust the Capital
Accounts in the same manner as provided in paragraph 18.1 in the case of a
property distribution. If there is a reallocation pursuant to this paragraph
8.7, then Capital Accounts shall thereafter be adjusted for allocations of
depreciation (cost recovery) and gain or loss in accordance with the provisions
of Treas. Reg. ss.ss. 1.704-1(b)(2)(iv)(f) and (g), and the Members'
distributive shares of depreciation (cost recovery) and gain or loss shall
thereafter be computed in accordance with the principles of IRC ss. 704(c) and
the regulations promulgated thereunder using the traditional method with
curative allocations within the meaning of Treas. Reg. ss. 1.704-3(c).
ARTICLE 9 - DISTRIBUTIONS
9.1 DISTRIBUTIONS TO THE MEMBERS. The Company's Net Cash Flow shall be
retained by the Company for reinvestment in the Company's business, except that,
to the extent such Net Cash Flow is available during a taxable year, (i) the
Company shall distribute an amount of Net Cash Flow during such taxable year
equal to the amount of federal and Kentucky state income taxes due with respect
to the Company's Net Profits for that taxable year ("Tax Distributions"),
assuming that the Member allocated such Net Profits is taxed on such income at
the highest applicable marginal rates, and (ii) after the Tax Distributions, the
Company may distribute additional Net Cash Flow, whether resulting from
patronage or non-patronage sources, for such taxable year among the Members in
accordance with their relative annual Patronage for such year. Any and all
distributions of accumulated Net Cash Flow from prior years shall be made among
the Members in accordance with the sum of their
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Capital Accounts less the amount of each Member's Capital Contributions.
Notwithstanding any other provision of this Agreement no member of a Concept
Coop shall be entitled to Patronage. Members of a Concept Coop are entitled to
patronage as provided by the Charter Documents of the Concept Coops. "NET
PROFITS" shall mean an amount equal to the Company's Taxable Income minus Tax
Losses for the applicable period.
9.2 TIMING OF DISTRIBUTIONS. Distributions made in proportion to or in
accordance with the Patronage of the Members shall be based upon relative
Patronage as of the record date for distributions and in accordance with IRC
ss.ss. 706(c) and (d). Tax Distributions shall be made quarterly to the extent
possible, on or prior to the date the Members are required to make estimated
tax payments for the previous quarter. Other distributions of Net Cash Flow
with respect to a taxable year shall be made within eight months of the end of
the taxable year.
ARTICLE 10 - ALLOCATION OF PROFITS AND LOSSES FOR TAX PURPOSES
10.1 ALLOCATIONS TO THE MEMBERS GENERALLY. Taxable Income and Tax
Losses shall be allocated annually among the Members in accordance with the
Members' relative annual Patronage for that tax year.
10.2 LIMITATION ON LOSSES. Notwithstanding the general allocation of
Taxable Income and Tax Losses described in paragraph 10.1, no Member shall be
allocated Tax Losses in excess of such Member's positive Capital Account
balances until such time as no Member has a positive Capital Account balance,
whereupon subsequent allocations of Tax Losses shall again be allocated among
the Members in accordance with paragraph 10.1. Furthermore, no Member shall be
allocated Tax Losses where it is reasonably anticipated that such Member's
Capital Account shall be negative at the end of the fiscal year in which the
Tax Losses arise or at the end of the subsequent fiscal year, as a result of
distributions of Net Cash Flow during such periods, until such time as no
Member would have a positive Capital Account balance after such reasonably
anticipated distributions of Net Cash Flow, whereupon subsequent allocations of
Tax Losses shall again be allocated among the Members in accordance with
paragraph 10.1. Tax Losses not allocated to a Member under this paragraph 10.2
shall be reallocated among those Members with positive Capital Account balances
in accordance with paragraph 10.1.
10.3 QUALIFIED INCOME OFFSET. If a Member receives any adjustment,
allocation, or distribution described in Treas. Reg. ss.ss.
1.704-1(b)(2)(ii)(d)(4), (5), or (6), then items of Taxable Income shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the deficit balance in such Member's Capital Account as quickly as
possible. It is the intention of the parties that this provision constitute a
"qualified income offset" within the meaning of Treas. Reg. ss.
1.704-1(b)(2)(ii)(d), and this provision shall be so construed.
10.4 MINIMUM GAIN CHARGEBACK. If there is a net decrease in the
Company's Minimum Gain (within the meaning of Treas. Reg. ss. 1.704-2(b)(2)) or
Member Nonrecourse Minimum Gain (within the meaning of Treas. Reg. ss.
1.704-2(i)(3)) during any fiscal year of the Company, each Member shall be
specially allocated, before any other allocations under this Article 10, items
of income and gain for such fiscal year (and subsequent fiscal years, if
necessary) in an amount equal to such Member's share (determined in accordance
with Treas. Reg. ss.ss. 1.704-2(g) and 1.704-2(i)(5), as applicable) of the net
decrease in the Company's Minimum Gain or Member Nonrecourse Debt
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Minimum Gain, as applicable, for such fiscal year, provided, however, that no
such allocation shall be required if any of the exceptions set forth in Treas.
Reg. ss. 1.704-2(f) apply. It is the intention of the parties that this
provision constitute a "minimum gain chargeback" within the meaning of Treas.
Reg. ss.ss. 1.704-2(f) and 1.704-2(i)(4), and this provision shall be so
construed.
10.5 CURATIVE ALLOCATIONS. The allocations set forth in paragraphs 10.2
through 10.4 are intended to comply with certain requirements of the Treasury
Regulations (the "REGULATORY ALLOCATIONS"). It is the intent of the Members
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of other items of
Taxable Income or Tax Losses pursuant to this paragraph 10.5. Therefore,
notwithstanding any other provision of this Article 10 (other than the
Regulatory Allocations), the Company's designated officer shall make such
offsetting special allocations of Taxable Income and Tax Losses in whatever
manner the Board of Directors determines appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would
have had if the Regulatory Allocations were not part of the Agreement and all
Taxable Income and Tax Losses were allocated pursuant to paragraph 10.1.
10.6 NO RESTORATION OF DEFICIT CAPITAL ACCOUNTS. No Member shall be
required under any circumstances (either during the period of the Company's
operation or upon the Company's dissolution and termination) to restore a
deficit in such Member's Capital Account or, except as explicitly provided in
this Agreement, otherwise make any contribution of cash or property to the
Company without such Member's consent, which may be withheld in such Member's
sole and absolute discretion.
10.7 CONTRIBUTED PROPERTY. In accordance with the rules of IRC ss.
704(c) and the Treasury Regulations promulgated thereunder, items of income,
gain, loss, and deduction with respect to any property contributed to the
capital of the Company shall, solely for tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its fair
market value at the time of contribution.
10.8 DIVISION AMONG MEMBERS. If there is a change in a Member's
Interest during a fiscal year of the Company, any allocations pursuant to this
Article 10 shall be made so as to take into account the varying interests of
the Members during the period to which the allocation relates, using the
interim closing of the books method for determining such allocations, or upon
the unanimous agreement of the Members (including any former Member affected by
such allocations), using any method for determining such allocations that is
provided in IRC ss. 706(d) and the Treasury Regulations promulgated thereunder.
ARTICLE 11 - BOOKS OF ACCOUNT, RECORDS AND REPORTS
11.1 RESPONSIBILITY FOR BOOKS OF ACCOUNT AND RECORDS. Proper and
complete books of account and records shall be kept by the Company's officers
in which shall be entered fully and accurately all transactions and other
matters relative to the Company's business as are usually entered into books of
account and records maintained by persons engaged in businesses of a like
character, including, without limitation, a Capital Account for each Member.
The Company's books of account and records shall be prepared in accordance with
generally accepted accounting principles, and shall
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be kept on the accrual basis, except in circumstances in which the Board of
Directors determine that another basis of accounting will be in the best
interests of the Company. The books of account and records shall, at all times,
be maintained at the principal place of business of the Company, and shall be
open to the inspection and examination of the Members or their duly authorized
representatives during reasonable business hours, and any Member may, at such
Member's own expense, examine and make copies of the books of account and
records of the Company.
11.2 REPORTS TO THE MEMBERS. As soon as practicable in the particular
case, the Company's President shall deliver or cause to be delivered the
following reports to each Member:
(a) After the end of each fiscal year, such information concerning
the Company as shall be necessary for the preparation by a Member of such
Member's income tax or other tax returns;
(b) An unaudited statement setting forth, as of the end of and for
each fiscal year, a profit and loss statement, a balance sheet of the Company,
and a statement showing the amounts allocated to or against each Interest during
that fiscal year; and
(c) Other information such as audited financial statements which in
the judgment of the Board of Directors shall be reasonably necessary for the
Members to be advised of the results of the Company's operations.
11.3 ADDITIONAL REPORTS. The Company's President may prepare or cause
to be prepared, and deliver or cause to be delivered to the Members from time
to time during each fiscal year, in connection with distributions or otherwise,
unaudited statements showing the results of the Company's operations to the
date of that unaudited statement.
ARTICLE 12 - FISCAL YEAR
The fiscal year of the Company shall end on December 31 of each year or
on such other date as may be required.
ARTICLE 13 - THE COMPANY'S FUNDS
The Company's funds shall initially be deposited in an account opened
with Bank One, Kentucky, NA and thereafter the Company's funds shall be
deposited in such bank account(s), or invested in such interest-bearing or
non-interest-bearing investments, as shall be designated by the Board of
Directors. All withdrawals from any such bank account(s) shall be made by an
authorized officer. The Company's funds shall be held in the name of the
Company and shall not be commingled with those of any other Person.
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ARTICLE 14 - MANAGEMENT OF THE COMPANY
14.1 RIGHTS AND DUTIES OF THE BOARD OF DIRECTORS.
(a) The business and affairs of the Company shall be managed by
its Board of Directors. The Board of Directors shall constitute the "manager"
of the Company as contemplated under the Act. Except for situations in which
the approval of the Members is expressly required in this Agreement or by
nonwaivable provisions of the Act, all powers of the Company shall be exercised
by or under the authority of, and the business and affairs of the Company shall
be managed under the direction of, the Board of Directors.
(b) The number of directors shall be eight (8). Unless otherwise
provided in each Concept Coop's Bylaws, the Board of Directors shall consist of
the Chairmen of the Board of each of the Concept Coops plus one (1) additional
representative selected by each of the Concept Coops plus two (2)
representatives selected by Tricon. Directors shall be appointed annually by
each of the Members and Tricon on or before the anniversary date of this
Agreement. If any director resigns, become unable to serve, or is removed in
accordance with this Agreement, the vacancy created thereby may only be filled
by the Member having the right and power to appoint such director or by Tricon
in the case of the two representatives appointed by Tricon. Each director shall
continue to serve until his successor is elected and qualifies. No director of
the Company appointed by a Concept Coop Member may be affiliated with Tricon or
its Affiliates in any manner other than as a KFC, Taco Bell or Pizza Hut
franchisee. Each member of the Company's Board of Directors also must be a
voting member of the Board of Directors of a Concept Coop.
(c) A director may resign at any time by delivering written
notice to the Board of Directors, the President/Chief Executive Officer, or to
the Company and the Member which appointed the resigning director, or to the
Company and Tricon if Tricon appointed the resigning director. A resignation
shall be effective when the notice is delivered unless the notice specifies a
later effective date. A director shall be deemed to have resigned effective
upon the death or the adjudicated incompetency of such director.
(d) A Member or Tricon may remove any director originally
appointed by such Member or Tricon respectively with or without cause at any
time upon notice to the director, the President/Chief Executive Officer, the
Company, the other Members, and Tricon. Directors who serve by virtue of their
position as Chairman of the Board of a Member shall be deemed to have resigned
from the Board of Directors effective upon their resignation or removal as
Chairman of the Board of the Member and their replacement as Chairman of the
Board of a Member shall become a director of the Company effective upon the
director's election.
(e) Regularly scheduled meetings of the Board of Directors shall
be held without notice of the purpose of the meeting. Special meetings of the
Board of Directors may be called by the Chairman of the Board, the President or
any two directors. Notice of the time and place of each meeting of the
directors shall be either (i) telephoned or personally delivered to each
director at least 48 hours before the time of the meeting, or (ii) mailed to
each director at the director's last known address at least 96 hours before the
time of the meeting. In each case the person calling a meeting shall be
responsible for providing notice. Notice may be waived by a director in
writing. A director's attendance at or participation in a meeting shall waive
any required notice to him of the
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meeting. Actions of the Board of Directors may be taken in lieu of a meeting by
unanimous written action.
(f) The Board of Directors may hold regular or special meetings.
The Board of Directors may permit any or all directors to participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A director participating in a meeting by
this means shall be deemed to be present in person at the meeting.
(g) A quorum of the Board of Directors shall consist of
five-eighths (5/8) of the directors in office immediately before the meeting
begins including one director appointed by each of the Concept Coops. If a
quorum is present when a vote is taken, which shall be prerequisite to the
taking of any action by the Board, then the affirmative vote of five-eighths
(5/8) of the votes (as designated below) possessed by the members of the entire
Board of Directors shall be the act of the Board of Directors provided such
majority includes (i) with respect to all matters the vote of at least one
director appointed by each Concept Coop and (ii) with respect to "Tricon
Matters" the vote of at least one director appointed by Tricon. As used herein,
Tricon Matters means either (i) selection of the Company's first non-interim
President/Chief Executive Officer, (ii) the admission of new members to the
Company, (iii) the location of the headquarters of the Company, (iv) any
Amendment to the Agreement or to the Articles of Organization of the Company or
(v) the conduct by the Company of a purchasing program for a restaurant concept
not owned or franchised by Tricon or its Affiliates; provided, however, that
the Company may assist the KFC Coop in winding up and discontinuing such
programs currently conducted by the KFC Coop. A director who is present at a
meeting of the Board of Directors when action is taken shall be deemed to have
assented to the action taken unless (i) the director objects at the beginning
of the meeting (or promptly upon the director's arrival) to holding it or
transacting business at the meeting, (ii) the director's dissent or abstention
from the action taken is entered in the minutes of the meeting, or (iii) the
director delivers written notice of the director's dissent or abstention to the
presiding officer of the meeting before its adjournment or to the Company
immediately after adjournment of the meeting. The right of dissent or
abstention shall not be available to a director who votes in favor of the
action taken. The initial headquarters of the Company shall be located in
Louisville, Kentucky.
(h) The Board of Directors may fix the compensation of
directors.
(i) The Board of Directors may create one or more committees and
appoint members of the Board of Directors to serve on them. Each committee
shall have two (2) or more members, who serve at the pleasure of the Board of
Directors. No committee may take action on behalf of the Board of Directors
unless the authority to take such action has been delegated by a unanimous vote
of the Board of Directors.
(j) (i) A director shall discharge his duties as a director,
including his duties as a member of a committee:
(A) In good faith;
(B) On an informed basis; and
(C) In a manner he honestly believes to be in the best
interests of the Company.
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(ii) A director shall be considered to discharge his duties on
an informed basis if he makes, with the care an ordinarily prudent person in a
like position would exercise under similar circumstances, inquiry into the
business and affairs of the Company, or into a particular action to be taken or
decision to be made.
(iii) In discharging his duties a director shall be entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by:
(A) One or more officers or employees of the Company whom
the director honestly believes to be reliable and competent in the matters
presented.
(B) Legal counsel, public accountants, or other persons as
to matters the director honestly believes are within the person's professional
or expert competence; or
(C) A committee of the Board of Directors of which he is not
a member, if the director honestly believes the committee merits confidence.
(iv) A director shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that makes reliance
otherwise permitted by paragraph 14.1(j)(iii) unwarranted.
(v) In any action taken as a director, or any failure to take
any action as a director, shall not be the basis for monetary damages or
injunctive relief unless:
(A) The director has breached or failed to perform the
duties of the director's office in compliance with this paragraph 14.1; and
(B) In the case of an action for monetary damages, the
breach or failure to perform constitutes willful misconduct or wanton or
reckless disregard for the best interests of the Company and its Members.
(vi) A person bringing an action for monetary damages under
this paragraph shall have the burden of providing by clear and convincing
evidence the provisions of paragraph 14.1(j)(v)(A), and the burden of proving
that the breach or failure to perform was the legal cause of damages suffered
by the Company.
(k) (i) A conflict of interest transaction shall be a transaction
with the Company in which a director of the Company has a direct or indirect
interest. A conflict of interest transaction shall not be voidable by the
Company solely because of the director's interest in the transaction if any one
of the following is true:
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(A) The material facts of the transaction and the director's
interest were disclosed or known to the Board of Directors or a committee of
the Board of Directors and the Board of Directors or committee authorized,
approved or ratified the transaction; or
(B) The transaction was fair to the Company.
(ii) For purposes of this paragraph 14.1, a director of the
Company shall have an indirect interest in a transaction if:
(A) Another entity in which he has a material financial
interest or in which he is a general partner is a party to the transaction; or
(B) Another entity of which he is a director, officer, or
trustee is a party to the transaction and the transaction is or should be
considered by the Board of Directors of the Company.
(iii) For purposes of paragraph 14.1(k)(i)(A), a conflict of
interest transaction shall be considered authorized, approved, or ratified if
it receives the affirmative vote of five-eighths (5/8) of the directors on the
Board of Directors (or on the committee) who have no direct or indirect
interest in the transaction ("Disinterested Directors") and who possess
five-eighths (5/8) of the votes possessed by all Disinterested Directors, but a
transaction shall not be authorized, approved or ratified under this paragraph
14.1 by a single director. If a majority of the directors who have no direct or
indirect interest in the transaction vote to authorize, approve, or ratify the
transaction, a quorum shall be present for the purpose of taking action under
this paragraph 14.1. The presence of, or a vote cast by, a director with a
direct or indirect interest in the transaction shall not affect the validity of
any action taken under paragraph 14.1(k)(i)(A) if the transaction is otherwise
authorized approved, or ratified as provided in paragraph 14.1(k)(i)(A).
14.2 OFFICERS.
(a) The Company shall have a Chairman of the Board, a
President/Chief Executive Officer, a Secretary, and a Treasurer/Chief Financial
Officer, and may have one or more Vice Presidents, all of whom shall be elected
by the Board of Directors in accordance with this Agreement, and who shall
serve at the pleasure of the Board of Directors. The Company may also have such
assistant officers as the Board of Directors may deem necessary, all of whom
shall be elected by the Board of Directors or appointed by an officer or
officers authorized by it.
(i) The Chairman of the Board shall be elected for a one year
term (or in the event of a vacancy for the remaining portion of a term) by the
Board of Directors on a rotating basis from among the directors elected to the
Board of Directors by a Member. After the election of the first non-interim
Chairman of the Board, the Chairman of the Board shall rotate after each one
year term so that the next Chairman of the Board is a director elected to the
Board of Directors by the KFC Coop, then the Pizza Hut Coop and then the Taco
Bell Coop. The Chairman of the Board shall have:
(A) Authority to preside at all meetings of the Board of
Directors; and
(B) Such other powers and duties as the Board of Directors
may assign to the Chairman.
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(ii) The President/Chief Executive Officer shall have:
(A) General charge and authority over the business of the
Company, subject to the direction of the Board of Directors;
(B) Authority acting alone, except as otherwise directed by
the Board of Directors, to sign and deliver any document on behalf of the
Company; and
(C) Such other powers and duties as the Board of Directors
may assign to the President.
(iii) The Vice President, or if there be more than one Vice
President, the Vice Presidents in the order of their seniority by designation
(or, if not designated, in the order of their seniority of election), shall
perform the duties of the President in his absence. The Vice Presidents shall
have such other powers and duties as the Board of Directors or the President
may assign to them.
(iv) The Secretary shall:
(A) Issue notices of all meetings for which notice is
required to be given;
(B) Have responsibility for preparing minutes of the
directors' and members' meetings and for authenticating records of the Company;
(C) Have charge of the Company's record books; and
(D) Have such other duties and powers as the Board of
Directors or the President may assign to the Secretary.
(v) The Treasurer/Chief Financial Officer shall:
(A) Keep adequate and correct accounts of the Company's
affairs and transactions, and
(B) Have such other duties and powers as the Board of
Directors or the President may assign.
(vi) Other officers and agents of the Company shall have such
authority and perform such duties in the management of the Company as the Board
of Directors or the President/Chief Executive Officer may assign to them.
(vii) The initial interim officers of the Company shall
include:
Thomas M. Cook --Chairman of the Board and President
---------------------
William L. Bizkley --Vice President/Treasurer/Chief Financial Officer
---------------------
David G. Neal --Vice President
---------------------
Christian L. Campbell --Secretary
---------------------
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14.3 MEMBERS.
(a) No Member shall have the power or authority to bind the
Company unless the Member has been authorized in writing by an authorized
officer of the Company to act as an agent of the Company.
(b) No Member shall have any duties or powers other than as
expressly provided in this Agreement.
14.4 INDEMNIFICATION. Each Person who is or becomes an officer,
director or Member of the Company shall be indemnified and advanced expenses by
the Company with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a
named defendant or respondent because he is or was a director, officer or
Member of the Company. This paragraph 14.4 obligates the Company to indemnify
and advance expenses to its officers, directors and Members only in connection
with proceedings arising from that Person's conduct in his official capacity
with the Company to the extent permitted by KRS 271B.8- 500 through 271B.8-580,
as amended from time to time (the "INDEMNIFICATION STATUTES"), if for purposes
of those Indemnification Statutes, the Company were included within the
definition of "corporation" under those Indemnification Statutes. The
indemnification and advancement of expenses provided by this paragraph 14.4
shall not be deemed exclusive of any other rights to which directors, officers
and Members may be entitled under any agreement, vote of Members or
Disinterested Directors, or otherwise.
14.5 LIMITATION OF DIRECTOR LIABILITY.
(a) Except as provided in paragraph 14.5(b), no director of the
Company shall have any personal liability to the Company or its Members for
monetary damages for breach of his duties as a director.
(b) Nothing in paragraph 14.5(a) shall be deemed or construed to
eliminate or limit the liability of directors for:
(1) Any transaction in which the director's personal
financial interest is in conflict with the financial interests of the Company or
its Members;
(2) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;
(3) Any vote for or assent to an unlawful distribution to
Members which is prohibited under KRS 275.225 (or under any corresponding
provision of the Act, as amended from time to time); or
(4) Any transaction from which the director derived an
improper personal benefit.
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14.6 FIDUCIARY DUTIES. Each director and officer of the Company shall
have a fiduciary duty of good faith, loyalty and fair dealing towards the
Company and its Members.
ARTICLE 15 -- COVENANTS OF THE MEMBERS
15.1 CONFIDENTIAL INFORMATION.
(a) The Company and each Member acknowledge that as a
consequence of their relationship with each other, trade secrets and
information of a proprietary or confidential nature relating to the business of
the Company and its Members may be disclosed to and/or developed by the Company
and/or such Member, including, without limitation, information about trade
secrets, products, services, licenses, costs, sales and pricing information,
and any other information that may not be known generally or publicly outside
of the Company and its Members (collectively referred to as "CONFIDENTIAL
INFORMATION").
(b) The Company and each Member acknowledge that such
Confidential Information is generally not known in the trade, and is of
considerable importance to the Company and its Members and agree that such
Member's relationship to the Company with respect to such information shall be
fiduciary in nature. It is expressly agreed between the Company and each Member
that the Company and each Member will hold in confidence and not disclose and
not make use of, during the term of this Agreement or after the termination for
any reason of a Member's relationship with the Company, any such Confidential
Information, except (i) as required in the course of a Member's relationship
with the Company, and (ii) after termination of a Member's relationship with
the Company, as required for the Member to conduct a purchasing program for its
restaurant concept.
15.2 NONSOLICITATION. Each Member shall not, at any time while a Member
of the Company whether voluntary or involuntary, directly or indirectly,
individually, in a partnership or joint venture, or through a corporation as
proprietor, employee, stockholder or consultant, or through any other business
entity or by any other means enter into agreement with or solicit the
employment of any present or former employees of the Company for the purpose of
causing them to (i) leave the employ of the Company, or (ii) reveal or utilize
Confidential Information in such a manner so as to constitute a violation of
this Article 15.
15.3 REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Upon execution and delivery of this Agreement, each of the
Members agrees to transfer good and marketable title to their initial Capital
Contributions to the Company, free and clear of any claims, liens, security
interests or encumbrances whatsoever, except for those liabilities and
obligations described in ANNEX A.
(b) Each of the Members represents and warrants to the Company
and the other Members as follows:
(i) The Member is a Corporation duly organized under the laws
of its state of incorporation or organization. Such Member has full capacity,
right, power and authority to execute and deliver this Agreement and to perform
its obligations under this Agreement. This
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Agreement constitutes the valid and legally binding obligation of such Member
and is enforceable against such Member in accordance with its terms. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been approved by all necessary action of
such Member under applicable laws governing such Member and any governing
instruments of such Member.
(ii) The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, and the performance and
fulfillment of its obligations and undertakings hereunder and thereunder by
such Member will not (A) violate any provision of, or result in the breach of
or accelerate or permit the acceleration of any performance required by the
terms of such Member's governing instruments; any contract, agreement,
arrangement or undertaking to which such Member is a party or by which it is
bound; any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority; or any applicable law,
ordinance, rule or regulation of any governmental body; or (B) result in the
creation of any claim, lien, charge or encumbrance upon any properties included
among such Member's initial Capital Contribution.
(iii) There are no claims of any kind or any actions, suits,
proceedings, arbitrations or investigations pending or threatened in any court
or before any governmental agency or instrumentality or arbitration panel or
otherwise relating to such Member or the properties included among such
Member's initial Capital Contribution. Such Member has complied with and is not
in default in any respect under any federal, state or local law, regulations or
ordinances.
(iv) No consents, approvals, authorizations, releases or orders
are required of or by such Member for the authorization, execution and delivery
of, and for the performance and consummation of the transactions contemplated
by, this Agreement, including without limitation, the assignment of the
properties included among such Member's initial Capital Contribution to the
Company.
(c) Each of the parties to this Agreement agrees to indemnify,
defend and hold the other parties and the Company harmless from and against any
loss or damages arising out of or with respect to a breach by such party of its
representations, warranties or covenants in this Agreement.
(d) Each Member warrants, represents, agrees and acknowledges: (A)
that it has adequate means of providing for its own current needs and
foreseeable future contingencies, and anticipates no need now or in the
foreseeable future to sell its Interest; (B) that it is acquiring its Interest
for its own account as a long-term investment and without a present view to
make any distribution, resale or fractionalization thereof; (C) that it and its
independent counselors have such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investment involved in its acquisition of its Interest and they have evaluated
the same; (D) that it is able to bear the economic risks of such investment;
(E) that it and its independent counselors have made such investigation of the
Company (including its business prospects and financial condition) and the
Members, have had access to all information regarding the Company and the
Members have had an opportunity to ask all of the questions regarding the
Company and the members as they deem necessary to fully evaluate his investment
therein; (F) that in connection with its acquisition of an Interest, it has
been fully informed by its independent counsel as to the
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applicability of the requirements of the Securities Act of 1933 and all
applicable state securities or "blue sky" laws to its Interest; and (G) that it
understands that (1) its Interest is not registered under the Securities Act or
any state securities law, (2) there is no market for its Interest and that it
will be unable to transfer its Interest unless such is so registered or unless
the transfer complies with an exemption from such registration (evidence of
which must be satisfactory to counsel for the Company), (3) such Interest
cannot be expected to be readily transferred or liquidated; and (4) its
acquisition of an Interest in the Company involves a high degree of risk.
ARTICLE 16 - TRANSFER OF INTERESTS
16.1 RESTRICTIONS ON TRANSFER. No Member shall sell, assign, pledge,
hypothecate, bequeath, give away or transfer by operation of law or otherwise
all or any part of such Member's Interest (collectively "TRANSFER"), unless the
Transfer and transferee of such Interest shall be approved by the Board of
Directors as a substituted Member (which approval may be arbitrarily withheld)
and the Transfer shall otherwise comply with the provisions of this Article 16.
The approved Transfer pursuant to this paragraph 16.1 shall confer upon the
assignee the right to become a substituted Member, in the following manner and
subject to the following conditions:
(a) Each assignment shall be effective as of the day that the Board
of Directors approves of the assignment;
(b) No assignment will be effective if the assignment would, in the
opinion of counsel to the Company, result in the termination of the Company for
purposes of the IRC; and
(c) Each assignee shall agree in writing to be bound by the
terms of this Agreement and to assume the assigning Member's obligations
hereunder (past and prospective); provided, however, that the foregoing shall
not serve to release the assigning Member from such Member's obligations under
this Agreement.
Any attempted Transfer of an Interest without complying with the
provisions of this Agreement shall be null and void ab initio.
16.2 WITHDRAWAL OF MEMBERS. No Member shall withdraw from the Company
for any reason during the period commencing on the date of this Agreement and
ending on December 31, 2003 (the "WITHDRAWAL DATE"). A Member may withdraw at
any time after the Withdrawal Date by giving the Company 365 days advance
written notice of such Member's withdrawal from the Company. The redemption
price payable by the Company for the Member's Interest shall be the Contract
Price, payable as provided in paragraph 16.5. The Company shall not be required
to redeem a withdrawing Member's Interest if the remaining Members elect to
dissolve the Company.
16.3 ASSIGNEES/TRANSFEREES BOUND BY THIS AGREEMENT. Any assignee or
Person admitted to the Company as a substituted Member shall be subject to and
bound by all provisions of this Agreement as if originally a party to this
Agreement.
16.4 CONTRACT PRICE. The Contract Price shall equal the balance of the
withdrawing Member's Capital Account as of the end of the month immediately
preceding the removal or withdrawal of a Member hereunder determined by the
Company's regularly acting firm of certified
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public accountants (the "ACCOUNTANT") in accordance with the generally accepted
accounting principles used in the preparation of the Company's financial
statements, provided that such Capital Account shall be appropriately adjusted
for any distribution by the Company which is not reflected in such Capital
Account as of the close of such month. The Accountant's determination of the
Contract Price shall be final, conclusive and binding on all parties.
16.5 TIME AND MANNER OF PAYMENT. The Contract Price or portion thereof
required to be paid pursuant to this Agreement shall be paid either all in cash
at the closing or at the option of the Company in 12 quarterly installments
with interest at an annual rate equal to the Prime Rate as in effect at the
beginning of each quarter. The closing on the transfer of any Interest shall
occur within 30 days after determination of the Contract Price, unless
otherwise specified herein.
ARTICLE 17 - DISSOLUTION OF THE COMPANY
The happening of any one of the following events, as provided below,
shall cause a dissolution of the Company:
(a) Subject to dissolution and termination of the Company
pursuant to Article 18, upon the sale or other disposition of all or
substantially all of the assets of the Company; or
(b) Subject to dissolution and termination of the Company
pursuant to Article 18, upon action of the Board of Directors authorizing the
dissolution of the Company.
No event of disassociation of a Member under the Act or event of dissolution
under the Act shall cause a dissolution of the Company.
ARTICLE 18 - WINDING UP; LIQUIDATING DISTRIBUTIONS; TERMINATION
18.1 WINDING UP.
(a) In the event of the dissolution of the Company for any
reason, then the Board of Directors shall commence to wind up the affairs of
the Company and to liquidate the Company's assets. The Members shall continue
to share profits and losses during the period of liquidation in accordance with
Article 10. The Board of Directors shall determine whether the Company's assets
are to be sold or distributed to the Members in dissolution of the Company. If
the Company's assets are distributed to the Members, then all such assets shall
be valued at their then fair market value as determined by the Members and the
difference, if any, of such fair market value over (or under) the adjusted
basis of such assets to the Company shall be credited (or charged) to the
Capital Accounts of the Members in accordance with Article 10. Fair market
value shall be used for purposes of determining the amount of any distribution
to a Member pursuant to paragraph 18.2.
(b) If the Board of Directors is unable to agree on the fair
market value of any Company asset, then the fair market value shall be
determined by a qualified independent appraiser selected by the Board of
Directors, or, if no appraiser can be agreed upon by the Members, then selected
by the Company's regularly employed accounting firm.
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18.2 LIQUIDATING DISTRIBUTIONS. Subject to the right of the Board of
Directors or the Members to set up such cash reserves as may be deemed
reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Company, the proceeds of the liquidation and any other funds
of the Company shall be distributed to:
(a) Creditors, in the order of priority as provided by law;
including, to the extent permitted by law, Members who are creditors;
(b) The Members as creditors, to the extent they did not receive
distributions pursuant to paragraph 18.2(a), and to Members in satisfaction of
the Company's liability for distributions under KRS 275.210; and
(c) The Members in proportion to their respective Capital Accounts
until they have received an amount equal to their Capital Accounts immediately
prior to such disposition, but after adjustment for gain or loss with respect to
the disposition of the Company's assets incident to the dissolution of the
Company and the winding up of its affairs, whether or not the distribution
occurs prior to the dissolution of the Company.
18.3 RIGHTS OF THE MEMBERS. Each Member shall look solely to the
Company's assets for all distributions with respect to the Company, its Capital
Contribution (including the return thereof), and share of profits, and shall
have no recourse therefor (upon dissolution or otherwise) against any other
Member.
18.4 TERMINATION. Upon complete liquidation of the Company and
distribution of all Company funds, the Company shall terminate.
ARTICLE 19 - MISCELLANEOUS
19.1 NOTICES. All notices, approvals, consents and demands required or
permitted under this Agreement shall be in writing and sent by hand delivery,
facsimile, overnight mail, certified mail or registered mail, postage prepaid,
to the Members at their addresses as shown from time to time on the records of
the Company, and shall be deemed given when delivered by hand delivery,
transmitted by facsimile or mailed by overnight, certified or registered mail.
Any Member may specify a different address by notifying the other Members and
the Company in writing of the different address.
19.2 GOVERNING LAW. This Agreement and the rights of the parties to
this Agreement shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Kentucky, without regard to or application of its
conflicts of law principles.
19.3 BENEFIT AND BINDING EFFECT. Except as otherwise specifically
provided in this Agreement, this Agreement shall be binding upon and shall
inure to the benefit of the parties to this Agreement, and their legal
representatives, successors and permitted assigns.
19.4 PRONOUNS AND NUMBER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall
include the singular and the plural, and pronouns stated
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in either the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter gender.
19.5 HEADINGS; ANNEXES AND SCHEDULES. The headings contained in this
Agreement are inserted only as a matter of convenience, and in no way define,
limit or extend the scope or intent of this Agreement or any provision of this
Agreement. The Annexes and Schedules to this Agreement are incorporated into
this Agreement by this reference and expressly made a part of this Agreement.
19.6 PARTIAL ENFORCEABILITY. If any provision of this Agreement, or the
application of any provision to any Person or circumstance shall be held
invalid, illegal or unenforceable, then the remainder of this Agreement, or the
application of that provision to Persons or circumstances other than those with
respect to which it is held invalid, illegal or unenforceable, shall not be
affected thereby.
19.7 PREVIOUS AGREEMENTS. This Agreement shall supersede all previous
agreements of the parties to this Agreement with respect to the matters to
which this Agreement pertains.
19.8 NO CERTIFICATES. Interests in the Company shall not be evidenced
by certificates.
19.9 ENFORCEMENT. In the event of a breach or threatened breach by a
Member of any of the provisions of this Agreement, the Company shall be
entitled to obtain a temporary restraining order and temporary and permanent
injunctive relief without the necessity of proving actual damages by reason of
such breach or threatened breach, and to the extent permissible under the
applicable statutes and rules of procedure, a temporary injunction or
restraining order may be granted immediately upon the commencement of any such
suit and without notice. Nothing in this Agreement may be construed as
prohibiting the Company from pursuing any other remedy or remedies, including
without limitation, the recovery of damages. The Company shall have the right
to set off any such damages against any amounts otherwise payable by it to the
Member under this Agreement or otherwise. Each Member further covenants and
agrees to indemnify and hold the Company harmless from and against all costs
and expenses, including legal or other professional fees and expenses incurred
by the Company in connection with or arising out of any proceeding instituted
by the Company against the Member to enforce the terms and provisions of this
Agreement if the Company is successful in whole or in part in such proceeding.
19.10 SCOPE. If any one or more of the provisions of this Agreement
shall for any reason be held to be excessively broad as to time, duration,
geographical scope, activity, or subject, each such provision shall be
construed, by limiting and reducing it, so as to be enforceable to the extent
compatible with applicable law then in force.
19.11 NO WAIVER. No waiver by any party to this Agreement at any time
of a breach by any other party of any provision of this Agreement to be
performed by such other party shall be deemed a waiver of any similar or
dissimilar provisions of this Agreement at the same or any prior or subsequent
time.
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19.12 AMENDMENTS. Any amendments to this Agreement or the Articles of
Organization shall be in writing and shall be approved by the Board of
Directors, except that any amendment materially affecting the rights or
obligations of a Member shall require the consent of such Member.
19.13 NO THIRD PARTY BENEFICIARY. It is not intended that any Person
other than Tricon be a third party beneficiary under the Agreement.
19.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
19.15 PARTITION. The Members agree that the Company's assets are not
and will not be suitable for partition. Accordingly, each of the Members
irrevocably waives any and all right such Member may have to maintain any
action for partition of any of the Company's assets. No Member shall have any
right to any specific assets of the Company upon the liquidation of, or any
distribution from, the Company.
[SEE ANNEX A BELOW FOR MEMBERS' SIGNATURES]
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ANNEX A TO OPERATING AGREEMENT
<TABLE>
<CAPTION>
NAME, ADDRESS AND SIGNATURE OF AMOUNT OF CAPITAL MEMBER
INITIAL MEMBER CONTRIBUTION LOANS
- ------------------------------ ----------------- ----------
<S> <C> <C>
KFC National Purchasing
Cooperative, Inc.
By________________________
Title:____________________
Address:__________________
__________________________
__________________________
Taco Bell National Purchasing
Coop, Inc.
By________________________
Title: ___________________
Address:__________________
__________________________
__________________________
Pizza Hut National Purchasing
Coop, Inc.
By________________________
Title:____________________
Address:__________________
__________________________
__________________________
</TABLE>
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ARTICLES OF ORGANIZATION
OF
UNIFIED FOODSERVICE PURCHASING COOP, LLC
The undersigned person forms a Kentucky limited liability company
pursuant to the Kentucky Limited Liability Company Act, KRS Chapter 275, as
follows:
ARTICLE I
NAME
The name of the limited liability company (the "Company") is Unified
FoodService Purchasing Coop, LLC.
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
The street address of the initial registered office of the Company is
400 West Market Street, 32nd Floor, Louisville, Kentucky 40202 and the name of
the initial registered agent is BTH Inc.
ARTICLE III
PRINCIPAL OFFICE
The mailing address of the initial principal office of the Company is
950 Breckenridge Lane, Suite 300 Louisville, Kentucky 40207.
ARTICLE IV
MANAGEMENT
The Company is to be managed by one or more managers.
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ARTICLE V
NUMBER OF MEMBERS
The Company has one or more members.
ARTICLE VI
DISSOLUTION
The term of the Company is Perpetual, except as it may be dissolved
pursuant to the Kentucky Limited Liability Act or the Company's operating
agreement
IN WITNESS WHEREOF, these Articles of Organization have been duly
executed by the undersigned on the 2nd day of October 1998 for the purpose of
forming a limited liability company under the Kentucky Limited Liability
Company Act.
______________________________
R. James Straus, Organizer
This instrument was prepared by:
- ---------------------------
R. James Straus, Esq.
Brown Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202
(502) 589-5400
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CONSENT TO APPOINTMENT OF REGISTERED AGENT
The undersigned hereby consents to and accepts its appointment as the
registered agent for Unified FoodService Purchasing Coop, LLC, a limited
liability company.
BTH INC.
By: ______________________________
R. James Straus, Vice President
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TABLE OF CONTENTS
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APPENDIX C
ASSET CONTRIBUTION AND LIABILITY ASSUMPTION AGREEMENT
This is an Asset Contribution and Liability Assumption Agreement (this
"Agreement") dated as of __________, 1999 (the "Effective Date"), between
Unified FoodService Purchasing Coop, LLC (the "Unified Coop") a Kentucky
limited liability company, and KFC National Purchasing Cooperative, Inc. ("KFC
Cooperative"), a Delaware corporation.
RECITALS
A. KFC Cooperative is engaged in the business of operating a purchasing
cooperative in which KFC Cooperative conducts purchasing programs for KFC and
Taco Bell franchisees.
B. The KFC Cooperative, Taco Bell National Purchasing Coop, Inc. (the
"Taco Bell Coop"), and Pizza Hut National Purchasing Coop, Inc. have each
entered into an Operating Agreement (the "Operating Agreement") of even date
herewith, organizing the Unified Coop for the purposes of combining the
purchasing volume for food, packaging, supplies, equipment, and other products
and services used, sold, or consumed by operators of KFC, Taco Bell, and Pizza
Hut Restaurants and outlets in order to achieve the lowest possible store
delivered costs for restaurant operators.
C. The Operating Agreement requires, among other things, that the KFC
Cooperative make certain capital contributions to the Unified Coop in exchange
for its membership interest therein. In satisfaction of that obligation, the
KFC Cooperative desires to transfer to the Unified Coop, and the Unified Coop
desires to accept and assume, upon the terms and conditions set forth in this
Agreement, certain assets and liabilities of the KFC Cooperative that are
referenced below in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
SECTION 1
DEFINITIONS
1.01 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "ASSETS" shall mean only the Contracts, Leases, Equipment,
Prepaid Assets and Kenco Stock; and shall not include any other assets of the
KFC Cooperative, including, without limitation, any accounts receivable, cash or
cash equivalents, goodwill, Inventory, or the capital stock or assets of any
direct or indirect subsidiary of the KFC Cooperative other than Kenco Insurance
Agency, Inc., a Kentucky corporation ("Kenco").
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(b) "ASSIGNMENTS OF LEASES" shall mean the Assignments of Lease,
substantially in the form(s) attached hereto as Annex 1.01(b), pursuant to
which KFC Cooperative shall assign the Leases to the Unified Coop.
(c) "CONTRACTS" shall mean all of the contracts, leases (other
than the Leases) and other commitments to which KFC Cooperative is a party or
otherwise obligated (other than any of same which are Taco Bell Coop Assets), a
list of which is set forth on Annex 1.01(c) hereto.
(d) "EQUIPMENT" shall mean all of the furniture, fixtures,
machinery, equipment and other tangible personal property owned by the KFC
Cooperative (other than any of same which are Taco Bell Coop Assets or
Inventory) a list of which is set forth on Annex 1.01(d) hereto.
(e) "INVENTORY" shall mean all food, raw materials, supplies,
equipment, packaging materials, purchased products, and all other goods,
merchandise and materials owned by the KFC Cooperative for sale to distributors
and customers of the KFC Cooperative.
(f) "KENCO BALANCE SHEET" shall mean the pro forma balance sheet
of Kenco as of the Effective Date, a copy of which is attached hereto as Annex
1.01(f).
(g) "KENCO STOCK" shall mean 1,000 shares of the common stock of
Kenco owned by the KFC Cooperative constituting all of the issued and
outstanding capital stock of Kenco.
(h) "LEASES" shall mean the real property leases of the KFC
Cooperative described on Annex 1.01(h).
(i) "LIABILITIES" shall mean all accounts payable, notes
payable, liabilities, commitments, indebtedness or obligations of any kind
whatsoever, whether absolute, accrued, contingent, matured or unmatured, direct
or indirect, of KFC Cooperative, or to which any of KFC Cooperative's
properties or assets are subject. The term "Liabilities" shall not include any
liabilities of Kenco.
(j) "PERSON" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(k) "PREPAID ASSETS" shall mean the prepaid assets of the KFC
Cooperative set forth on Annex 1.01(k) hereto.
(l) "REAL PROPERTY" shall mean the real property leased by KFC
Cooperative pursuant to the Leases.
(m) "TACO BELL COOP ASSETS" shall mean any and all assets and
liabilities transferred by the KFC Cooperative to the Taco Bell Coop pursuant
to the Agreement and Plan of Corporate Separation of even date herewith.
1.02 ADDITIONAL TERMS. Other capitalized terms used in this Agreement
but not defined in Section 1.01 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement.
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SECTION 2
CONTRIBUTION AND ASSUMPTION
2.01 CONTRIBUTION OF ASSETS; ASSUMPTION OF CONTRACTS AND LEASES.
Subject to the terms and conditions of this Agreement and pursuant to the
Operating Agreement:
(a) The KFC Cooperative hereby assigns, transfers, delivers, and
sets over to the Unified Coop, and the Unified Coop hereby agrees to
accept and assume, the Assets;
and
(b) The Unified Coop hereby assumes and agrees to perform and
discharge in full any and all of the KFC Cooperative's obligations and
liabilities under the Contracts and the Leases from and after the date hereof.
2.02 CAPITAL ACCOUNT CREDIT.
(a) In exchange for its contribution of the Assets to the
Unified Coop, the KFC Cooperative shall receive credit to its Capital Account,
as defined in the Operating Agreement, equal to the value (the "Effective Date
Value") of the Assets on the balance sheet of the KFC Cooperative prepared as
of the Effective Date in accordance with generally accepted accounting
principles (the "Effective Date Balance Sheet"); provided, however, (i) if the
Effective Date Value exceeds $950,000, the Unified Coop shall pay the KFC
Cooperative the amount by which the Effective Date Value exceeds $950,000, and
(ii) if the Effective Date Value is less than $950,000, the KFC Cooperative
shall pay the Unified Coop the amount by which $950,000 exceeds the Effective
Date Value . All payments required pursuant to (i) and (ii) above shall be made
in cash or immediately available funds within five (5) days after the Effective
Date Balance Sheet and Effective Date Value become final as provided below. The
Unified Coop hereby acknowledges receipt of $50,000 in cash previously
contributed by the KFC Cooperative to the Organizing Board of the Unified Coop
against the balance of the KFC Cooperative's capital contribution to the
Unified Coop.
(b) On or as promptly as practical, but in any event not more
than five (5) days following the Effective Date, the Unified Coop shall prepare
and deliver to the KFC Cooperative and/or the KFC Cooperative's accountants a
proposed Effective Date Balance Sheet (the "Proposed Effective Date Balance
Sheet"). The Proposed Effective Date Balance Sheet shall include a
determination of the Effective Date Value. The KFC Cooperative and its
accountants shall have the right to consult during reasonable hours with
appropriate personnel of the Unified Coop and to have access to, and, at the
KFC Cooperative's expen to review make copies of the work papers of the Unified
Coop with respect to the preparation of the Proposed Effective Date Balance
Sheet.
(c) The KFC Cooperative may dispute the Proposed Effective Date
Balance Sheet and/or the determination of the Effective Date Value derived
therefrom prepared by the Unified Coop by notice to the Unified Coop setting
forth in reasonable detail the amounts in dispute and the
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good faith basis for such dispute within five (5) days after their receipt of
the Proposed Effective Date Balance Sheet.
(i) If the KFC Cooperative fails to deliver a notice of
objections within such five (5) day period, the KFC Cooperative shall be deemed
to have accepted the Proposed Effective Date Balance Sheet and the
determination of the Effective Date Value derived therefrom and such shall be
binding on the parties hereto, and shall not be subject to challenge by any
party hereto in any form.
(ii) If the KFC Cooperative delivers a notice of objections
within such five (5) day period, the Unified Coop and the KFC Cooperative and
their accountants shall attempt in good faith to resolve such dispute, and any
resolution as to any disputed amount shall be final, binding and conclusive on
the parties hereto. If there is no resolution of such dispute within five (5)
days of the date of receipt by the Unified Coop of a written notice of dispute,
the KFC Cooperative and the Unified Coop shall, within five (5) additional
days, retain a reputable independent accounting firm (the "Independent
Accountant"), which Independent Accountant shall be mutually acceptable to the
KFC Cooperative and the Unified Coop. The Independent Accountant shall, within
thirty (30) days after being retained, resolve such remaining dispute, and
provide written notice of such resolution by facsimile, confirmed by mail, and
such resolution shall be binding and conclusive on the parties hereto. Such
resolution shall be within the range of amounts proposed by the Unified Coop
and the KFC Cooperative and their accountants as to each disputed item. The
fees and disbursements of the Independent Accountant shall be borne equally by
the KFC Cooperative and the Unified Coop. After resolving the items in dispute,
the Independent Accountant shall prepare and deliver a final Effective Date
Balance Sheet and a certification of the Effective Date Value derived therefrom
or shown thereon which shall be binding on the parties hereto and shall not be
subject to challenge by any party hereto in any form.
2.03 NO ASSUMPTION OF OTHER LIABILITIES. Except for the
Contracts and Leases and as provided in Section 2.04 [employee matters], the
Unified Coop is not assuming, and the parties do not intend for the Unified
Coop to assume, pursuant to this Agreement or otherwise, any of the
Liabilities. Notwithstanding the foregoing, Kenco shall remain responsible for,
and shall discharge in accordance with their terms, all liabilities of Kenco
including those reflected on the Kenco Balance Sheet.
2.04 EMPLOYEES OF KFC COOPERATIVE; EMPLOYEE BENEFIT PLANS.
(a) Except as otherwise specifically provided in this
Agreement, the Unified Coop will not purchase, recognize, assume or otherwise
acquire any rights, obligations, assets or liabilities under, arising from or
resulting from any employment agreement in existence between the KFC
Cooperative and any employee, or any person employed to consult with or perform
services for the KFC Cooperative, or otherwise. The Unified Coop shall, as of
the date of this Agreement, make offers of employment to all of the current
employees of the KFC Cooperative, except for Thomas D. Henrion, on terms and
conditions substantially similar in the aggregate to those currently in effect
between the KFC Cooperative and its employees, and the employees hired by the
Unified Coop will receive credit for past service with the KFC Cooperative for
purposes of eligibility and vesting under the Unified Coop plans. The Unified
Coop agrees to maintain a sufficient number of such former KFC Cooperative
employees during the 60 days following the date
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of this Agreement, so that the consummation of the transactions contemplated by
this Agreement will not give rise to a "plant closing" or a "mass layoff" (as
those terms are defined in the U.S. Worker Adjustment and Retraining
Notification Act of 1988, as amended (the "WARN Act"), as of or prior to the
date of this Agreement. For purposes of this Agreement, the date of this
Agreement is the "Effective Date" as that term is defined and used under the
WARN Act. The Unified Coop and the KFC Cooperative will enter into an agreement
with Thomas D. Henrion, simultaneously with the execution of this Agreement,
governing Mr. Henrion's services to those entities following the Effective
Time.
(b) To facilitate the foregoing, the KFC Cooperative agrees to
either layoff or terminate all of its employees as of the Effective Date.
(c) Except to the extent of the KFC Cooperative Retirement Plans
(as defined below) assumed by the Unified Coop as described in paragraph
2.04(d) below, the Unified Coop shall not be responsible to the KFC Cooperative
or to any current or former employee of the KFC Cooperative for any employee
benefits (whether earned, accrued or vested) due to the KFC Cooperative's
employees with respect to their employment prior to the date of this Agreement.
The KFC Cooperative agrees to immediately reimburse the Unified Coop for all
amounts paid by the Unified Coop to discharge or satisfy employee benefit plan
obligations (e.g. vacation pay, sick leave pay, etc.) which are earned and
vested as of the date of this Agreement under the KFC Cooperative's policies
and plans applicable to its employees.
(d) The Unified Coop agrees to assume, as sponsoring employer,
by appropriate action of its board, the following employee benefit plans of the
KFC Cooperative: (1) the KFC Cooperative National Purchasing Cooperative, Inc.
Thrift Plan (the "KFC Cooperative Thrift Plan"); (2) the KFC Cooperative
National Purchasing Cooperative, Inc. Money Purchase Pension Plan (the "KFC
Cooperative Pension Plan", and the KFC Cooperative Thrift Plan and the KFC
Cooperative Pension Plan are referred to herein as the "Retirement Plans"); and
(3) the KFC National Purchasing Cooperative, Inc. Flexible Benefits Plan. The
KFC Cooperative agrees to, by action if its board, consent to the assumption of
those plans by the Unified Coop and cease to be the plan sponsor, participating
employer, plan administrator, and cease its service in any other capacity with
respect to the plans. In addition, the Unified Coop may, at its option, assume
the following welfare benefit plans and the insurance contracts related thereto
to provide welfare benefits for the employees of the Unified Coop: (1) the
group health plan insured through Anthem Blue Cross/Blue Shield (Alternative
Health HMO and PPO coverage); (2) the group dental plan insured through Delta
Dental; (3) the group life and accidental death and dismemberment plan insured
through Fortis Benefits Insurance Company; and (4) the group long term
disability plan insured through Fortis Benefits Insurance Company. From and
after the Effective Time, the Unified Coop may amend the Retirement Plans and
any other benefit plans of the Unified Coop it assumes or adopts and provide
such benefits as it deems appropriate. The Organizing Board of the Unified Coop
has engaged William M. Mercer, Inc. to assist the Unified Coop in establishing
human resources policies and benefit plans for the new Unified Coop, as well as
to assist in the integration of KFC Coop and SCM personnel.
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SECTION 3
REPRESENTATIONS AND WARRANTIES OF KFC COOPERATIVE
The KFC Cooperative represents and warrants to the Unified Coop as
follows:
3.01 ORGANIZATION.
(a) The KFC Cooperative is a corporation duly organized and
validly existing under the laws of the State of Delaware, and has full corporate
power and authority to own, lease and operate its properties as such properties
are now owned, leased and operated, and to conduct its business as and where its
business is now conducted. The KFC Cooperative is qualified to do business and
is in good standing in all jurisdictions in which the character of the
properties owned or leased by it, or the nature of the activities conducted by
it, makes such qualification necessary. Schedule 3.01(a) attached hereto lists
the jurisdictions in which the KFC Cooperative is qualified to do business.
(b) Kenco is a corporation duly organized and validly existing
under the laws of Kentucky and has full corporate power and authority to own,
lease and operate its properties as such properties are now owned, leased and
operated, and to conduct its business as and where its business is now
conducted. Kenco is qualified to do business and is in good standing in all
jurisdictions in which the character of the properties owned or leased by it or
the nature of the activities conducted by it, makes such qualification
necessary. Schedule 3.01(b) attached hereto lists the jurisdictions in which
Kenco is qualified and/or licensed as an insurance agency to do business.
3.02 AUTHORITY.
(a) The KFC Cooperative has full right, power, authority, and
capacity to execute and deliver this Agreement, and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the KFC Cooperative enforceable in accordance with its terms.
(b) Except as set forth on Schedule 3.02(b), the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, and the performance and fulfillment of its respective obligations and
undertakings hereunder by the KFC Cooperative will not, (i) violate any
provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of, the Certificate or
Articles of Incorporation or Bylaws of the KFC Cooperative or Kenco; any
contract, agreement, arrangement or undertaking to which the KFC Cooperative or
Kenco is a party or by which the KFC Cooperative or Kenco may be bound; any
judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority; or any applicable law, ordinance, rule or
regulation of any governmental body; (ii) result in the creation of any claim,
lien, charge or encumbrance upon any of the properties or assets (whether real
or personal, tangible or intangible) of the KFC Cooperative or Kenco; or (iii)
terminate or cancel, or result in the termination or cancellation of, any
agreement or undertaking to which the KFC Cooperative or Kenco is a party.
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement have been duly
authorized by all requisite corporate action of the KFC Cooperative. All other
consents, approvals, authorizations, releases and orders required for the
authorization, execution, and delivery of, and for the performance and
consummation of the transactions contemplated by, this Agreement, on the part
of the KFC Cooperative have been obtained.
3.03 TITLE TO ASSETS. The KFC Cooperative has, and transfers the
Unified Coop hereby, good and marketable title to all of the Assets, free and
clear of any claims, liens, charges, mortgages, security interests or
encumbrances whatsoever. To the knowledge of the KFC Cooperative, (a) Kenco has
good and marketable title to all of the assets reflected on the Kenco Balance
Sheet, free and clear of any claims, liens, charges, mortgages, security
interests or encumbrances whatsoever except for those reflected in the Kenco
Balance Sheet, and (b) Kenco has no liabilities other than those reflected in
the Kenco Balance Sheet. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, will not result
in the creation of any such encumbrance on the Assets.
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3.04 CONTRACTS AND LEASES. The KFC Cooperative has performed all
material obligations required to be performed by it to date under all the
Contracts and Leases, and the KFC Cooperative does not know that any other
party is in material default (or would be in default on the giving of notice or
the lapse of time or both) under any such Contracts or Leases.
3.05 LITIGATION; COMPLIANCE WITH LAWS. Except as set forth on Schedule
3.05, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations pending or, to the knowledge of the KFC
Cooperative, threatened in any court or before any governmental agency or
instrumentality or arbitration panel or otherwise against, by or affecting the
KFC Cooperative, or the KFC Cooperative's business or any of the Assets, in
each case, which would have a material adverse effect on the business, or
Assets of the KFC Cooperative taken as a whole (a "Material Adverse Effect"),
or which would prevent the performance of this Agreement or any of the
transactions contemplated hereby, or which would declare the same unlawful or
cause the rescission thereof. The KFC Cooperative has complied with and is not
in default in any respect under (and has not been charged or, to the knowledge
of the KFC Cooperative, threatened with, and is, to the knowledge of the KFC
Cooperative, not under an investigation with respect to, any charge concerning
any violation of any provision of) any federal, state or local law, regulation,
ordinance, rule or order (whether executive, judicial, legislative or
administrative), or any order, writ, injunction or decree of any court, agency
or instrumentality, in each case, which would have a Material Adverse Effect.
3.06 LABOR MATTERS. The KFC Cooperative is not a party to, or
negotiating, and has no obligations under, any agreement, collective bargaining
or otherwise, with any party relating to the compensation or working conditions
of any of the KFC Cooperative's or Kenco's employees. Neither the KFC
Cooperative nor Kenco is not obligated under any agreement to recognize or
bargain with any labor organization or union on behalf of its employees. The KFC
Cooperative does not know of any union organizational or representational
activities underway among any of the KFC Cooperative's or Kenco's employees.
There are no existing or, to the knowledge of the KFC Cooperative, threatened
labor strikes, slowdowns, disputes, grievances or disturbances which might have
a Material Adverse Effect.
3.07 EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Section 3.07, the term "Employee
Benefit Plan(s)" shall mean each of the employee benefit plans and policies
maintained by the KFC Cooperative and which the Unified Cooperative will assume
in accordance with Section 2.04(d) of this Agreement, and the term Retirement
Plans means the KFC Cooperative Thrift Plan and the KFC Cooperative Pension
Plan as described in Section 2.04(d).
(b) Each of the Employee Benefit Plans has been executed,
managed and administered in material compliance with the applicable provisions
of ERISA, the Code, and the regulations promulgated thereunder, and all other
applicable laws. The KFC Cooperative has no knowledge of any fact which would
adversely affect the qualified status of any of the employee benefit plans, or
of any threatened or pending claim against any of the employee benefit plans or
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their fiduciaries by any participant, beneficiary or government agency, other
than routine claims for benefits by participants and beneficiaries.
(c) The Retirement Plans are intended to be qualified under
Section 401(a) or 403(a) of the Code, and the related trusts are intended to be
exempt under Section 501(a) of the Code, and the Retirement Plans are, and have
been since adoption, so qualified, as evidenced by a current determination
letter from the IRS confirming the qualification of those plans.
(d) The KFC Cooperative Pension Plan does not have an
accumulated funding deficiency (as that term is defined in Section 302 of ERISA
and 412 of the Code), whether or not waived.
(e) No benefits are provided to, or promised to, retirees, other
than as required by law under COBRA.
3.08 ENVIRONMENTAL MATTERS.
(a) As used in this Section 3.08, the term "Hazardous Material"
shall mean any substance, chemical or waste (including, without limitation,
asbestos, polychlorinated biphenyls (PCBs) and petroleum) that is designated or
defined (either by inclusion in a list of materials or by reference to
exhibited characteristics) as hazardous, toxic or dangerous, or as a pollutant
or contaminant, in any federal, state or local law, code or ordinance, now
existing or hereafter in effect, and all rules and regulations promulgated
thereunder, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
ss.ss. 9601, et seq., and the Kentucky Revised Statutes, Chapter 224.
(b) The KFC Cooperative's business, operations, assets,
equipment, leaseholds and facilities, including, without limitation, the Real
Property, are in material compliance with, the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder, including, without limitation,
all laws and regulations with respect to reporting releases of Hazardous
Materials and the registration, testing and maintenance of underground storage
tanks.
(c) The KFC Cooperative has neither received notice of, nor
knows of or suspects, any fact(s) which might constitute material violations(s)
of any federal, state or local environmental, health or safety laws, codes or
ordinances, or any rules or regulations promulgated thereunder, which relate to
the use, ownership or occupancy of any of the Real Property.
(d) Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no material emission, spill,
release, discharge or threatened release into or upon (i) the air; (ii) the
soils or any improvements located thereon; (iii) the surface water or ground
water; or (iv) the sewer, septic system or waste treatment, storage or disposal
system servicing the Real Property, of any Hazardous Material at or from any of
the Real Property.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE UNIFIED COOP
The Unified Coop represents and warrants to KFC Cooperative as follows:
4.01 ORGANIZATION. The Unified Coop is a limited liability company duly
organized and validly existing under the laws of the Commonwealth of Kentucky,
and has full corporate power and authority to own and lease its properties as
such properties are now owned and leased, and to conduct its business as and
where its business is now conducted.
4.02 AUTHORITY. The Unified Coop has full right, power, authority and
capacity to execute and deliver this Agreement, and to perform its obligations
under this Agreement. This Agreement constitutes the valid and legally binding
obligation of the Unified Coop, enforceable in accordance with its terms.
SECTION 5
COVENANTS OF THE KFC COOPERATIVE
5.01 CONSENTS AND APPROVALS. To the extent that the assignment of any
of the Leases or Contracts or the transfer of any of the other Assets requires
the consent of a third party, this Agreement shall not constitute an agreement
to assign the same if an attempted assignment thereof, without the consent of
the third party thereto, would constitute a breach thereof, but the KFC
Cooperative shall following the date hereof use its commercially reasonable
efforts to obtain all such consents. If any such consent is not obtained or is
obtainable only upon payment by the Unified Coop of amounts not otherwise
required to be paid under the terms of such Contract or Lease, the KFC
Cooperative will cooperate with the Unified Coop in any reasonable arrangement,
which does not impose any additional expense on the Unified Coop, which is
designed to provide for the Unified Coop the benefits under any such Contract
or Lease, including enforcement for the benefit of the Unified Coop, at the
expense of the KFC Cooperative, of any and all rights of the KFC Cooperative
against any third party thereto arising out of the failure or refusal of such
third party to consent to such assignment.
5.02 APPOINTMENT OF THE UNIFIED COOP AS AGENT FOR KFC COOPERATIVE. The
KFC Cooperative, for itself and its successors and assigns, hereby constitutes
and appoints the Unified Coop, its successor and assigns, as its true and
lawful attorney, with full powers of substitution and resubstitution, in the
name and stead of the KFC Cooperative but on behalf and for the benefit of the
Unified Coop, its successors and assigns, to demand and receive any and all of
the Assets and to give receipts and releases for and in respect of the Assets
and any part thereof, and, in general, to do all acts and things in relation to
the Assets which the Unified Coop or its successors and assigns shall deem
desirable, hereby declaring that the foregoing rights and powers are coupled
with an interest and shall be irrevocable by the KFC Cooperative, its
successors and assigns, in any manner or for any purpose or cause whatever. The
power granted to the Unified Coop pursuant to this power of attorney is
expressly limited to acts with respect to the Assets, and shall not be
construed to authorize, permit or license the Unified Coop to take any action
or in any way bind or represent the KFC Cooperative in any transaction or
relation not concerning the Assets.
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SECTION 6
SURVIVAL OF REPRESENTATIONS AND WARRANTIES--INDEMNIFICATION
6.01 SURVIVAL. Each of the parties' representations, warranties,
covenants and agreements set forth in this Agreement shall survive the
execution and delivery of this Agreement.
6.02 INDEMNITY BY KFC COOPERATIVE. The KFC Cooperative shall indemnify
and hold the Unified Coop harmless from and against, and shall pay to the
Unified Coop the full amount of, any loss, claim, damage, liability or expense
(including reasonable attorneys' fees) resulting to the Unified Coop, either
directly or indirectly, from (a) any inaccuracy in any representation or
warranty, or any breach of any covenant or agreement, by the KFC Cooperative
contained in this Agreement; and (b) any of the Liabilities, except for the
Contracts and Leases and other liabilities specifically assumed hereunder by
the Unified Coop and any liabilities of Kenco.
6.03 INDEMNITY BY THE UNIFIED COOP. The Unified Coop shall indemnify and
hold the KFC Cooperative harmless from and against, and shall pay to the KFC
Cooperative the full amount of, any loss, claim, damage, liability or expense
(including reasonable attorneys' fees) resulting to the KFC Cooperative, either
directly or indirectly, from any inaccuracy in any representation or warranty,
or any breach of any covenant or agreement, by the Unified Coop contained in
this Agreement.
6.04 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this Section 6, the party seeking indemnification (the
"Indemnitee") shall promptly notify the other party or parties (the
"Indemnitor(s)") of the claim and, when known, the facts constituting the basis
for such claim. Such notice shall specify, if known, the amount or a good faith
estimate of the amount of the liability arising therefrom.
6.05 DEFENSE OF THIRD PARTY CLAIMS.
(a) In connection with any claim or legal proceeding by a third
party which may give rise to indemnity hereunder (a "Third Party Claim"), the
Indemnitor(s), at the sole cost and expense of the Indemnitor(s), may assume
the defense of any such Third Party Claim by giving written notice to the
Indemnitee. The Indemnitor(s)' notice must be received by the Indemnitee within
twenty (20) days following receipt of their notice of such Third Party Claim
and must acknowledge the Indemnitor(s)' obligation to indemnify the Indemnitee
with respect to such Third Party Claim.
(b) If the Indemnitor(s) assume the defense of any Third Party
Claim, the Indemnitor(s) shall select counsel reasonably acceptable to the
Indemnitee to conduct the defense of such claim, and the Indemnitor(s) shall
take all reasonable steps necessary in the defense or settlement thereof. If
the Indemnitor(s) assume the defense of any Third Party Claim, the
Indemnitor(s) shall not be obligated to pay any attorneys fees or investigation
costs incurred by the Indemnitee in connection with its participation in such
defense, unless the Indemnitor(s) assume the defense of such Third Party Claim
at any time after the expiration of the Indemnitor(s)' twenty (20) day notice
period. The Indemnitee shall cooperate with all reasonable requests of the
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Indemnitor(s) in connection with the Indemnitor(s)' defense of any Third Party
Claim. The Indemnitor(s) shall not consent to a settlement of, or the entry of
any judgment arising from, any Third Party Claim, without the prior written
consent of the Indemnitee, which consent shall not be unreasonably withheld or
delayed. The Indemnitee shall be entitled to participate in (but not control)
the defense of any such action, with its own counsel and at its own expense.
(c) If the Indemnitor(s) do not assume the defense of any such
Third Party Claim, the Indemnitee may defend against such Third Party Claim in
such manner as the Indemnitee may deem appropriate, including, but not limited
to, settling such claim on such terms as the Indemnitee may deem appropriate.
If the Indemnitor(s) seek to question the manner in which the Indemnitee
defended such Third Party Claim or the amount of or nature of any such
settlement, the Indemnitor(s) shall have the burden to prove by a preponderance
of the evidence that the Indemnitee did not defend such claim in a reasonably
prudent manner.
6.06 ARBITRATION. Except for disputes to be resolved in the manner
described in Section 2, all controversies, disputes or claims arising among the
parties in connection with, or with respect to, any provision of this Agreement
which has not been resolved within fifteen (15) calendar days after either the
KFC Cooperative or the Unified Coop shall notify the other in writing of such
controversy, dispute or claim, shall be submitted to arbitration in accordance
with the rules of the American Arbitration Association or any successor
thereof. Unless otherwise mutually agreed, arbitration shall take place at an
appointed time and office location in Louisville, Kentucky. In the event of
arbitration, each of the KFC Cooperative or the Unified Coop shall select one
arbitrator (who shall not be counsel for any such party); and the two so
designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. The award of the arbitrators may grant any relief which
might be granted by a court of general jurisdiction, including, without
limitation, award of damages and/or injunctive relief, and may, in the
discretion of the arbitrators, assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrators and reasonable
attorneys' fees, against either or both parties, in such proportions as the
arbitrators shall determine. Nothing herein contained shall bar the right of
any of the parties to seek and obtain temporary injunctive relief from a court
of competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, ending completion of the arbitration.
SECTION 7
MISCELLANEOUS
7.01 NOTICES. Any notices or other communications required or permitted
hereunder shall be deemed to have been duly given (a) if delivered in person
and a receipt is given; or (b) if sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed as follows:
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(a) If to the KFC Cooperative:
KFC National Purchasing Cooperative, Inc.
950 Breckenridge Lane
Louisville, Kentucky 40207
Attn:______________________________
with a copy to:
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202-3363
Attn: R. James Straus
(b) If to the Unified Coop:
Unified FoodService Purchasing Coop, LLC
950 Breckenridge Lane
Louisville, Kentucky 40207
Attn:______________________________
with copies to:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
or if sent to such substituted address as any of the parties has given to the
others in writing in accordance with this Section 7.01.
7.02 WAIVERS. No waiver or failure to insist upon strict compliance with
any obligation, covenant, agreement or condition of this Agreement shall
operate as a waiver of, or an estoppel with respect to, any subsequent or other
failure.
7.03 EXPENSES. Each party shall assume its respective expenses incurred
in connection with the transactions contemplated by this Agreement.
7.04 HEADINGS; INTERPRETATION. The headings in this Agreement have been
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, as appropriate.
7.05 ANNEXES AND SCHEDULES. The Annexes and Schedules to this Agreement
are incorporated herein by reference and expressly made a part hereof.
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7.06 ENTIRE AGREEMENT. All prior negotiations and agreements by and
among the parties hereto with respect to the subject matter hereof are
superseded by this Agreement, and there are no representations, warranties,
understandings or agreements with respect to the subject matter hereof other
than those expressly set forth herein or on an Annex or Schedule delivered in
connection herewith.
7.07 GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the Commonwealth of Kentucky.
7.08 BROKERS. The parties covenant and agree with one another that they
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no
broker or other Person is entitled to a commission or finders' fee in
connection with these transactions. Each party shall indemnify and hold the
other parties harmless from and against any claim by any agent or broker
claiming by or through it for any fee or other compensation due or allegedly
due that broker or agent.
7.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
7.10 SEVERABILITY. If any provision of this Agreement or its application
will be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of all other applications of that provision, and of
all other provisions and applications hereof, will not in any way be affected
or impaired. If any court shall determine that any provision of this Agreement
is in any way unenforceable, such provision shall be reduced to whatever extent
is necessary to make such provision enforceable.
7.11 BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon,
and shall inure to the benefit of, the Unified Coop and the KFC Cooperative and
each of their successors and assigns; provided, however, that no party to this
Agreement shall assign his or its rights or obligations hereunder without the
express written consent of the other parties, which consent shall not be
unreasonably withheld.
7.12 FURTHER ASSURANCES. From time to time at another party's request
and without further consideration, a party shall execute and deliver such
further instruments of conveyance, assignment and transfer, and take such other
actions as the requesting party may reasonably request, in order to more
effectively convey and transfer any of the Assets. In addition, any monies
collected by a party which are due and payable to another party will be
promptly remitted to such party upon receipt thereof.
7.13 PRORATIONS AND ADJUSTMENTS. All income and operating expenses
pertaining to the conduct and operation of the KFC Cooperative's business
represented by the Assets shall be prorated as of the date hereof, so that, as
between the KFC Cooperative and the Unified Coop, the KFC Cooperative shall
receive all revenues and be responsible for all expenses, costs and liabilities
(including, but not limited to, accrued employee vacation expenses, salaries,
ad valorem property
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taxes, lease payments, etc.) allocable to the period prior to the date hereof,
and the Unified Coop shall receive all revenues and be responsible for all
expenses, costs and liabilities allocable to the date hereof and thereafter.
7.14 SALES AND TRANSFER TAXES AND FEES. All sales and transfer taxes (if
any), and all recording, filing and other fees (including any penalties or
interest), incurred in connection with this Agreement and the transactions
contemplated hereby will be borne by the Unified Coop. The parties will assist
each other in the filing of all necessary tax returns and other documentation
with respect to all such taxes and fees, and, if required by applicable law,
will join in the execution of any such tax returns or other documentation.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date set forth in the preamble hereto, but actually on the
dates set forth below.
UNIFIED FOODSERVICE PURCHASING
COOP, LLC
By_________________________________
Title:_____________________________
Date:______________________________
KFC NATIONAL PURCHASING COOPERATIVE,
INC.
By_________________________________
Title:_____________________________
Date:______________________________
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ANNEX 1.01(B)
ASSIGNMENTS OF LEASES
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ANNEX 1.01(C)
CONTRACTS
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ANNEX 1.01(D)
EQUIPMENT
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ANNEX 1.01(F)
KENCO EFFECTIVE DATE
PRO FORMA BALANCE SHEET
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ANNEX 1.01(H)
LEASES
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ANNEX 1.01(K)
PREPAID ASSETS
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SCHEDULE 3.01(a)
KFC COOPERATIVE JURISDICTION
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SCHEDULE 3.01(b)
KENCO JURISDICTIONS
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SCHEDULE 3.02(B)
AUTHORITY
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SCHEDULE 3.05
LITIGATION
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APPENDIX D
PURCHASING PROGRAM MANAGEMENT AGREEMENT
(_____________________________)
This is a Purchasing Program Management Agreement (this "Agreement")
dated as of _________, 1998, between Unified FoodService Purchasing Coop, LLC
(the "Unified Coop") and __________________________ (the "Concept Coop").
RECITALS
A. The Concept Coop, ________________________________________, and
_________________________ (collectively, the "Unified Coop Members") have
entered into an Operating Agreement of even date herewith (the "Operating
Agreement"), pursuant to which they have formed the Unified Coop for the
purposes of combining the purchasing volume for food, packaging, supplies,
equipment, and other products and services ("Goods and Equipment") used, sold,
or consumed by operators of KFC, Taco Bell and Pizza Hut concept restaurants
and outlets in order to achieve the lowest possible store delivered costs for
restaurant operators.
B. As contemplated in the Operating Agreement, the Unified Coop will
manage and operate purchasing programs for the Unified Coop Members. Such
management services shall include negotiating the lowest possible sustainable
prices for Goods and Equipment from suppliers approved by Tricon and/or its
affiliates as franchisors for sale through the Unified Coop or directly by the
supplier to Tricon-approved distributors selected by the Unified Coop Members
and the restaurant operators represented by Members; assisting the Unified Coop
Members and restaurant operators in negotiating and monitoring freight and
distribution arrangements; administrating related insurance and other service
programs; and negotiating arrangements such as master beverage agreements and
regional poultry contracts.
C. The Unified Coop and the Concept Coop recognize the role of Tricon
as franchisor and acknowledge that Tricon retains the exclusive right to
approve all suppliers and distributors of Goods and Equipment used, sold, or
consumed by operators ("Concept Coop Operators") of Taco Bell concept
restaurants and outlets ("Goods and Equipment") hereunder.
D. The Concept Coop acknowledges and agrees that the purchasing program
(the "Purchasing Program") operated by the Unified Coop on behalf of the
Concept Coop is intended to be appropriately capitalized and financially
self-sustaining and in any event to be operated on a cooperative basis in a
manner which qualifies any dividends to be paid to the ultimate members of the
Concept Coop as patronage dividends under Subchapter T of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
and agreements contained in this Agreement, the parties agree as follows:
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1. TERM AND TERMINATION.
(a) TERM. The initial term (the "Initial Term") of this Agreement
shall commence as of the date first set forth above and shall
continue until December 31, 2003. Thereafter, the Initial Term
shall automatically renew on December 31 of each year for a one
year term unless terminated as provided below in Section 1(b).
Hereafter, the Initial Term and any extension thereof shall be
referred to as the "Term."
(b) ELECTIVE TERMINATION. Either the Unified Coop or the Concept Coop
may terminate this Agreement effective as of December 31, 2003 or
any December 31 thereafter during any year of the Term provided
that the terminating party provides written notice to the other
party at least one (1) year prior to such effective date of
termination. If either the Unified Coop or the Concept Coop shall
fail to cure a material breach of this Agreement within sixty (60)
days after receipt of notice of the breach from the non-breaching
party, then the non- breaching party may terminate this Agreement
immediately by giving written notice of termination to the
breaching party.
(c) POST TERMINATION OBLIGATIONS. Upon termination of this Agreement,
the Concept Coop shall cooperate with and assist the Unified Coop
with respect to the sale by the Unified Coop of any remaining
Goods and Equipment and with the satisfaction of any remaining
purchase and other commitments and shall pay and reimburse the
Unified Coop for its reasonable expenses in connection with
winding up the Purchasing Program in an orderly manner and in
connection with restructuring its operations to not include the
Purchasing Program.
2. ESTABLISHMENT AND OPERATION OF THE PURCHASING PROGRAM.
(a) With the advice and counsel of the Concept Coop, the Unified Coop
shall establish and administer, on behalf of and for the account
of the Concept Coop, a Purchasing Program pursuant to which the
Unified Coop shall (i) purchase, inventory and stage and/or
arrange for the purchase, inventory and staging of Goods and
Equipment for sale or resale to Concept Coop Operators and/or
their distributors, in accordance with the terms and conditions
set forth herein, (ii) negotiate purchase arrangements with
suppliers of Goods and Equipment who sell directly to distributors
and/or Concept Coop Operators, (iii) assist the Concept Coop in
negotiating with distributors of Goods and Equipment, (iv) monitor
distributor performance, (v) work with regional purchasing groups
of Concept Coop Operators, and (vi) make available to the Concept
Coop and Concept Coop Operators other programs such as health and
property insurance programs.
(b) The Concept Coop acknowledges and agrees that the Purchasing
Program shall be operated on a Unified Coop-wide basis along with
similar purchasing programs established and administered by the
Unified Coop for and on behalf of the _________ Coop and the
_________ Coop, and, when appropriate, on an exclusive basis for
Goods and Equipment.
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(c) In connection with its dealings with Concept Coop Operators, the
Concept Coop acknowledges and agrees that the Unified Coop shall
administer the Purchasing Program consistent with the Unified
Coop's administration of its other purchasing programs, including,
but not limited to, the Unified Coop (i) taking title to the Goods
and Equipment purchased for resale to Concept Coop Operators
and/or arranging for the sale of Goods and Equipment by suppliers
directly to distributors and/or Concept Coop Operators as
determined by the Concept Coop; (ii) establishing payment terms
with Concept Coop Operators consistent with the Unified Coop's
current payment terms for other customers; (iii) using the Unified
Coop's standard form agreements as in general use from time to
time (i.e., orders, order acknowledgments, invoices, etc.); (iv)
conducting business in accordance with the Unified Coop's Uniform
Code of Business Conduct as amended from time to time, a current
copy of which has previously been provided to the Concept Coop;
and (v) allocating all expenses of the Unified Coop to the
Purchasing Program and the Unified Coop's other purchasing
programs in accordance with the Unified Coop's expense allocation
policies and procedures (the "Expense Allocation Procedures") as
amended from time to time, the current form of which has
previously been provided to the Concept Coop.
3. COMMITMENT OF CONCEPT COOP.
(a) COMMITMENT TO ADVISE AND ASSIST. The Concept Coop shall advise,
counsel with and assist the Unified Coop with respect to the
establishment and operation of the Purchasing Program, including,
but not limited to (i) advising the Unified Coop in connection
with the designation of Goods and Equipment to be purchased and
sold through the Unified Coop; (ii) advising the Unified Coop with
respect to appropriate suppliers; (iii) assisting the Unified Coop
in obtaining approvals or consents, if required, from Tricon or
its affiliates, for the Unified Coop, designated suppliers or
designated distributors to implement and participate in the
Purchasing Program with respect to, trademarked or proprietary
items; (iv) providing the Unified Coop with budgets and providing
for financially sustainable programs; (v) providing sufficient
capital and loans to the Unified Coop consistent with the
provisions of the Operating Agreement to sustain the Purchasing
Program; (vi) providing input to the Unified Coop on service
levels and programs in which the Concept Coop and its members
desire to participate; (vii) developing the Concept Coop's
patronage dividend policies; (viii) establishing policies with
respect to sales to non-Concept Coop members; and (ix) assisting
the Unified Coop in such other ways as the Unified Coop may
reasonably request.
(b) CONTACT PERSONS. The Concept Vice President (as defined below) and
the representatives of the Unified Coop responsible for the
Purchasing Program may contact such appropriate representatives of
the Concept Coop that the President of the Concept Coop may
specify for advice, counsel and other assistance with respect to
the Purchasing Program.
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(c) EXCLUSIVITY; COMMITMENT TO SPONSOR. The Concept Coop exclusively
commits to the Unified Coop to take all steps necessary and
appropriate to endorse and sponsor the Unified Coop and the
purchase by Concept Coop Operators of Goods and Equipment through
the Unified Coop and to otherwise contribute to the success of the
Purchasing Program. The Concept Coop hereby agrees not to
maintain, separate and apart from the Purchasing Program, any
similar purchasing program for or on behalf of its members.
4. RELATIONSHIP WITH CONCEPT COOP OPERATORS. Concept Coop Operators who are
members of the Concept Coop commit to purchase Goods and Equipment
through the Unified Coop by virtue of their subscription to membership in
the Concept Coop. The Unified Coop shall sell Goods and Equipment to all
such Concept Coop Operators, or to their designated distributors, as
appropriate, subject to compliance by specific Concept Coop Operators and
specific distributors with the Unified Coop's usual and customary credit
approval standards and procedures as in effect from time to time.
5. GENERAL MANAGER; PERSONNEL ISSUES.
(a) The Unified Coop shall appoint and employ a person as the Concept
Vice President responsible for the day-to-day operation of the
Purchasing Program. The Concept Vice President shall report to the
Chief Executive Officer of the Unified Coop and generally be
subject to the Unified Coop's human resources policies applicable
to the Unified Coop's other similarly situated employees.
Notwithstanding the foregoing, the Unified Coop and the Concept
Coop acknowledge and agree that the Concept Vice President may
only be hired by the Unified Coop or terminated (other than for
cause), in each case, with the advice and consent of the Concept
Coop.
(b) The Unified Coop shall employ, with the advice and consent of the
Concept Coop, such personnel at Tricon's ___________ headquarters
located in _____________ as shall be necessary or appropriate to
the efficient and successful operation of the Purchasing Program.
6. MARGINS AND DISTRIBUTOR FEES. The Unified Coop shall adhere to the
following limitations on Margins (as defined below) on Goods and
Equipment sold to Concept Coop Operators directly or through
distributors:
(a) AMOUNTS. Taking into consideration the amount of capital made
available to the Unified Coop by the Concept Coop to sustain the
Purchasing Program, the level of service and nature of the
programs in which the Concept Coop and its members desire to
participate, and the nature of the purchasing arrangements
involved (i.e., whether the Unified Coop takes title to Goods and
Equipment, etc.), the Unified Coop shall establish the lowest
possible Margins (as defined below) and/or, in the case of Goods
and Equipment on which the Unified Coop does not take title,
distributor fees ("Distributor Fees") necessary to sustain the
Purchasing Program while maintaining prudent working capital
reserves and providing a sound operational basis for the
Purchasing Program.
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(b) DEFINITIONS. As used in this Agreement, "Margin" means the amount
by which the Unified Coop's price to Concept Coop Operators and
their distributors exceeds the sum of the Unified Coop's Landed
Cost (as defined below) for the relevant Goods and Equipment, plus
Freight (as defined below). As used in this Agreement, "Landed
Cost" means the Unified Coop's cost (net of cash discounts and
volume rebates) with respect to a product F.O.B. seller's dock.
Freight as used in this Agreement means (i)(A) with respect to
food and paper Goods, the Unified Coop's cost of freight F.O.B.
seller's dock to distributor's distribution warehouse, and (B)
with respect to Equipment (excluding smallwares), the Unified
Coop's cost of freight F.O.B. seller's dock to the customer, plus
(ii) where appropriate, the Unified Coop's standard markup on
freight. The fiscal year referred to in this Section 6 shall mean
the Unified Coop's fiscal year. The purchase price of food and
paper Goods referenced above reflects freight F.O.B. seller's dock
to the distributor's distribution warehouse.
(c) ALTERNATIVE METHODS OF PRICE DETERMINATION. The Unified Coop may
sell Goods and Equipment to Concept Coop Operators at a purchase
price determined in a manner other than as set forth in this
Section 6 to the extent the Unified Coop and the Concept Coop
agree in writing to alternative purchase price determination
methods or alternative specific prices.
(d) QUARTERLY INCOME SETTLEMENT. Within sixty (60) days after the end
of each fiscal quarter, the Unified Coop shall pay to the Concept
Coop an amount equal to 70% of the income generated by the Unified
Coop from the Purchasing Program net of all expenses allocable to
the Purchasing Program for such quarter as determined in
accordance with the Expense Allocation Procedures ("Net Income");
and, in the case that the quarterly expenses of the Purchasing
Program as allocated in accordance with the Expense Allocation
Procedures exceed the income of the Purchasing Program for such
quarter ("Net Loss"), the Concept Coop shall reimburse the Unified
Coop for all of any such Net Loss.
(e) ANNUAL SETTLEMENT. Similarly, within sixty (60) days after the end
of each fiscal year of the Unified Coop, the Unified Coop shall
pay to the Concept Coop an amount equal to 90% of any Net Income
for the Purchasing Program for the fiscal year less any quarterly
payments of Net Income made pursuant to Section 6(d) above; and
the Concept Coop shall reimburse the Unified Coop for all Net
Losses less any reimbursements made by the Concept Coop for
quarterly Net Losses pursuant to Section 6(d) above. The remaining
10% of Net Income may be retained by the Unified Coop as a
Purchasing Program administration fee.
7. TRADEMARK LICENSES.
(a) The Concept Coop hereby grants to the Unified Coop, a
royalty-free, right and license to use the Concept Coop's trade
name and trademark or such other trade names and trademarks as may
from time to time be designated in writing by the
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Concept Coop (collectively, the "Concept Coop Marks"). The Concept
Coop Marks shall be used solely in connection with the purchase
and sale of Goods and Equipment to Concept Coop Operators pursuant
to this Agreement and the Purchasing Program. Except as provided
in Section 1(c) above, the foregoing license shall terminate upon
termination of this Agreement.
(b) The Unified Coop hereby grants to the Concept Coop, a
royalty-free, right and license to use the Unified Coop's trade
name and trademark or such other trade names and trademarks as may
from time to time be designated in writing by the Unified Coop
(collectively, the "Unified Coop Marks"). The Unified Coop Marks
shall be used solely in connection with the purchase and sale of
Goods and Equipment to Concept Coop Operators pursuant to this
Agreement and the Purchasing Program. Except as provided in
Section 1(c) above, the foregoing license shall terminate upon
termination of this Agreement.
8. INSURANCE.
The Unified Coop shall carry insurance against risks, including products
liability, in an amount equal to $1,000,000 per occurrence and in the
aggregate, which insurance shall be issued by a reputable insurer,
satisfactory to the Concept Coop in its reasonable judgment. The Concept
Coop shall be included on the insurance policy as additional insured
party. The Unified Coop shall deliver to the Concept Coop, within the
time period provided below, a certificate of insurance evidencing its
compliance with this Section 8. Each certificate of insurance shall
provide that if the Unified Coop's policy is canceled for any reason
whatsoever, if any substantial change is made in the coverage which
affects the Concept Coop, or if such policy is allowed to lapse for
nonpayment of premium, the Concept Coop shall be given prompt written
notice (and if the Unified Coop receives sufficient notice, the Concept
Coop shall be given 30 days' notice) of such cancellation, change or
lapse. All policies of insurance provided for herein shall be issued by
insurance companies with a rating of at least "AX" in Best's Key Rating
Guide. A certificate of insurance for all policies required hereunder
shall be delivered to the Concept Coop within 10 days after the effective
date of this Agreement, and thereafter the Unified Coop shall deliver a
certificate of insurance for any renewal policy to the Concept Coop at
least 30 days prior to the expiration of the term of each policy required
hereunder. When any such policy shall expire or terminate, renewal or
additional policies shall be procured and maintained by the Unified Coop
in like manner to like extent.
9. SEPARATE RECORDS.
(a) RECORDKEEPING. To the extent reasonably practicable, the Unified
Coop shall keep and maintain separately sufficient records of the
Purchasing Program to permit the Concept Coop to account for and
administer its patronage dividend program, including, but not
limited to, the following records:
(i) all purchase orders, purchase order acknowledgments, vendor
invoices and freight invoices of the Unified Coop relating
to the purchase by the Unified Coop of Goods and Equipment;
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(ii) all purchase orders, purchase order acknowledgments,
vendor invoices and freight invoices of the Unified Coop
relating to the purchase by distributors from the Unified
Coop of Goods and Equipment; and
(iii) any other data or documents that may be reasonably
required by the Concept Coop to verify the accuracy of
the Margins and Distributor Fees required under Section 6
of this Agreement. Such records shall be kept for a
period of seven (7) years after the end of each fiscal
year.
(b) AUDIT OF RECORDS. The Concept Coop shall have the right at any
time, at the Concept Coop's sole expense, upon reasonable
advance notice (but no more frequently than once a fiscal
quarter) to cause an independent auditor, satisfactory to both
the Concept Coop and the Unified Coop, to audit all of the
records of the Unified Coop required to be kept pursuant to this
Section 9. The Unified Coop shall make the records available for
inspection and audit by the independent auditor at the
headquarters of the Unified Coop during regular business hours.
(c) INDEPENDENT AUDITOR CONFIDENTIALITY. Any information gained from
such audit or inspection shall be confidential, and the Concept
Coop shall advise any independent auditor that such information
is confidential, and shall not be disclosed to any party other
than the Unified Coop and subject to the following sentence, the
Concept Coop. The Concept Coop shall cause the independent
auditor to agree to not disclose to any party any specific
purchase price paid by the Unified Coop to a specific vendor for
goods purchased by the Unified Coop. The restrictions on
disclosure provided for in this Section 9 are subject to any
judicial or administrative order or direction to disclose such
information.
10. INDEMNITY.
(a) COOPERATIVE. The Unified Coop shall indemnify and hold harmless
the Concept Coop against any and all expenses, costs, claims,
demands, causes of action and resulting settlements, awards,
judgments, losses, deficiencies, liabilities and damages
(including reasonable counsel and accountants' fees and
expenses) incurred or suffered by the Concept Coop as a result
of (i) the unlawful, negligent or otherwise wrongful acts or
omissions of the Unified Coop or any of its employees or agents
in connection with the Unified Coop's performance under this
Agreement, or (ii) the Unified Coop's breach of any
representation, covenant, term or provision of this Agreement,
including without limitation, Section 12.
(b) THE CONCEPT COOP. The Concept Coop shall indemnify and hold
harmless the Unified Coop against any and all expenses, costs,
claims, demands, causes of action and resulting settlements,
awards, judgments, losses, deficiencies, liabilities and damages
(including reasonable counsel and accountants' fees and expenses
incurred or suffered by the Unified Coop as a result of (i) the
unlawful, negligent or otherwise wrongful acts or omissions of
the Concept Coop or any of its agents or employees in connection
with the Concept Coop's performance under this Agreement, or
(ii) the
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Concept Coop's breach of any representation, covenant, term or
provision of this Agreement, including, without limitation,
Section 12 of this Agreement.
(c) INDEMNIFICATION OBLIGATION. A party's entitlement to
indemnification as provided for in this Section 10 shall extend
to such party's officers, directors, employees, legal counsel,
accountants, and other agents and representatives.
(d) PROCEDURE. Any party who believes it to be entitled to
indemnification pursuant to this Section 10 (the "Indemnified
Party") shall give prompt notice to the party who may be
obligated to indemnify under this Section 10 (the "Indemnifying
Party") of any assertion of liability by the Indemnified Party
or a third party which might give rise to a claim by the
Indemnified Party against the Indemnifying Party hereunder,
provided that the Indemnified Party's failure to give such
notice shall not diminish its right to indemnification pursuant
to this Section 10. In the event any action, suit or proceeding
(a "Legal Action") is brought against the Indemnified Party,
with respect to which the Indemnifying Party may have liability
hereunder, the Legal Action shall, upon the written agreement of
the Indemnifying Party, be defended (and such defense shall
include all proceedings on appeal or for review which counsel
for the Indemnifying Party shall deem appropriate) by the
Indemnifying Party. The Indemnified Party shall have the right
to be represented by counsel and accountants, at the Indemnified
Party's own expense, and the Indemnified Party shall be kept
fully informed by the Indemnifying Party as to such Legal Action
at all stages thereof whether or not the Indemnified Party is
represented.
(e) MISCELLANEOUS. If a party does not agree that it is obligated to
provide indemnification hereunder with respect to a Legal
Action, it shall nevertheless have the right to be represented
by counsel and accountants, at its own expense and shall be kept
fully informed as to such Legal Action at all stages thereof
whether or not it is so represented. Until the Indemnifying
Party has assumed the defense of any Legal Action, all legal or
other expenses reasonably incurred by the Indemnified Party
shall be reimbursed by the Indemnifying Party to the extent an
obligation to indemnify exists under this Section 10. The
Indemnifying Party shall make available to the Indemnified Party
and its attorneys and accountants all books and records of the
Indemnifying Party relating to such Legal Action and the parties
hereto agree to render to each other such assistance as they may
reasonably require of each other to facilitate the proper and
adequate defense of any such Legal Action.
11. CONFIDENTIALITY.
(a) ACKNOWLEDGMENT AND AGREEMENT. The parties acknowledge that from
time to time each party will receive (the "Receiving Party")
confidential and proprietary information concerning the business
of the other party (the "Disclosing Party") and of affiliates
and other related persons and entities ("Related Entities").
Each party further acknowledges that such information, if shared
directly or indirectly with third parties, could be detrimental
to the Disclosing Party or to Related Entities and that, but for
this Agreement and participation in the Purchasing Program, the
Receiving
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Party would not receive such nonpublic information, which
information could place the Disclosing Party and/or Related
Entities at a competitive disadvantage if disclosed.
Accordingly, each party agrees that it shall not disclose, copy,
communicate or divulge to, or use for the direct or indirect
benefit of any person, firm, association or company other than
for the benefit of the Receiving Party in accordance with this
Agreement, any material provided by the Disclosing Party,
including, but not limited to business methods, business
policies, procedures, techniques, research or development
projects or results, trade secrets or other knowledge or
processes of or developed by the Disclosing Party or Related
Entities or any other confidential information relating to or
dealing with the business operations or activities of the
Disclosing Party or Related Entities, made known to the
Receiving Party or learned or acquired by the Receiving Party
pursuant to this Agreement.
(b) ENFORCEMENT. Each party agrees that this Section 11 is governed
by the laws of the Commonwealth of Kentucky and suit to enforce
any part of this Section 11 shall be brought in a court of
competent jurisdiction in Jefferson County, Kentucky. Further,
each party agrees that Kentucky conflict of laws principles will
not be applied to preclude the application of Kentucky law to
any disputes arising under this Section 11.
12. MISCELLANEOUS.
(a) COMPLIANCE WITH LAW. During the term of this Agreement, the
Unified Coop and the Concept Coop shall comply with all federal,
state, and local laws, statutes, regulations, and ordinances
affecting or relating to the Unified Coop's activities under
this Agreement.
(b) REPRESENTATIONS AND WARRANTIES.
(i) THE CONCEPT COOP. The Concept Coop represents and
warrants to the Unified Coop that it has full right,
power and authority to enter into this Agreement and
perform its obligations hereunder. The execution and
delivery of this Agreement, the consummation of the
transactions contemplated hereby, and the performance and
fulfillment of its obligations and undertakings
thereunder by the Concept Coop will not violate any
provision of, or result in the breach of, (1) any
applicable law, ordinance, rule or regulation of any
governmental body, (2) the certificate of incorporation
or bylaws of the Concept Coop, or (3) any agreement or
undertaking to which, to its knowledge, without due
inquiry, the Concept Coop is a party or by which it may
be bound, or of any judgment, decree, writ, injunction,
order or award of any arbitration panel, court or
governmental authority applicable to the Concept Coop.
The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this
Agreement have been duly authorized by all requisite
corporate action of the Concept Coop.
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(ii) THE UNIFIED COOP. The Unified Coop has full right, power
and authority to enter into this Agreement and perform
its obligations hereunder. The execution and delivery of
this Agreement, the consummation of the transactions
contemplated hereby, and the performance and fulfillment
of its obligations and undertakings thereunder by the
Unified Coop will not (i) violate any provision of, or
result in the breach of, (1) any applicable law,
ordinance, rule or regulation of any governmental body,
(2) the articles of organization or Operating Agreement
of the Unified Coop or (3) any agreement or undertaking
to which, to its knowledge, the Unified Coop is a party
or by which it may be bound, or of any judgment, decree,
writ, injunc tion, order or award of any arbitration
panel, court or governmental authority applicable to the
Unified Coop. The execution and delivery of, and the
performance and consummation of the transactions
contemplated by, this Agreement have been duly authorized
by all requisite corporate action of the Unified Coop.
(c) ASSIGNABILITY. This Agreement and any rights or obligations
granted or incurred herein shall not be assigned, sublicensed,
or otherwise transferred by any party, by operation of law or
otherwise, without the prior written consent of all other
parties, however, any party may assign its rights and
obligations under this Agreement to a wholly-owned subsidiary or
an affiliate of such party. No such arrangement shall relieve
any party of its obligations incurred herein without the written
agreement of all other parties.
(d) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the Concept Coop and the
Unified Coop and supersedes all prior and contemporaneous
understandings and agreements, whether oral or written, relating
to this Agreement's subject matter. This Agreement may not be
amended, modified or supplemented except by a writing signed the
party against whom the amendment, modification or supplement is
to be enforced.
(e) NO PARTNERSHIP OR JOINT VENTURE. This Agreement is not intended
to create, and shall not create, a partnership or joint venture
relationship among the parties.
(f) NOTICE. All notices and other communications required under this
Agreement must be in writing and shall be sufficiently given if
delivered in person, by telecopy or by certified or other
receipted mail as follows:
If to the Concept Coop:
--------------------------------
--------------------------------
Fax: ____________________________
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Attn: President
with copies to:
--------------------------------
--------------------------------
Attn: ___________________________
If to the Unified Coop:
Unified FoodService Purchasing Coop, LLC
950 Breckinridge Lane
Louisville, Kentucky 40207
Fax: (502) 896-5880
Attn: President and Chief Executive Officer
with copies to:
--------------------------------
Attn:____________________________
Any party may by notice to the others change the addressee and address for
notices.
(g) THIRD PARTY BENEFICIARIES. It is the specific intent of the
parties to this Agreement that no person not a party to this
Agreement shall have or receive any rights or benefits under
this Agreement. This Agreement is entered into for the express
benefit of the parties hereto, and is not intended and shall not
be deemed, to create in any other person or entity any rights,
powers, privileges or interests whatsoever, including, without
limitation, any right of claim or cause of action under this
Agreement or any right to enforce the terms of this Agreement.
(h) NON-WAIVER. No failure to exercise, or delay in exercising, on
the part of the Concept Coop or the Unified Coop, any right,
power, or privilege granted hereunder shall operate as a waiver
of such right, power, or privilege for future occurrences. The
rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
(i) BENEFIT. This Agreement shall bind and benefit the Concept Coop
and the Unified Coop, and their permitted successors and
assigns.
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts. Each of such counterparts shall be deemed an
original, but all such counterparts shall together constitute
one and the same instrument.
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(k) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky and
the laws of the United States applicable therein.
(l) SURVIVAL OF COVENANTS. The provisions of Sections 1(c), 10 and
11 shall survive the termination or expiration of this
Agreement.
(m) ARBITRATION. All controversies, disputes or claims arising among
the parties in connection with, or with respect to, any
provision of this Agreement, which has not been resolved within
15 calendar days after either the Unified Coop or the Concept
Coop shall notify the other in writing of such controversy,
dispute or claim, shall be sub mitted to arbitration in
accordance with the rules of the American Arbitration
Association or any successor thereof. Unless otherwise mutually
agreed, arbitration shall take place at an appointed time and
office location in Louisville, Kentucky. In the event of
arbitration, each of the Unified Coop and the Concept Coop shall
select one arbitrator (who shall not be counsel for any such
party); and the two so designated shall select a third
arbitrator. If either party shall fail to designate an
arbitrator within seven calendar days after arbitration is
requested, or if the two arbitrators shall fail to select a
third arbitrator within 14 calendar days after arbitration is
requested, then such arbitrator shall be selected by the
American Arbitration Association or any successor thereto upon
application of either party. Judgment upon any award of the
majority of arbitrators shall be binding and shall be entered in
a court of competent jurisdiction. The award of the arbitrators
may grant any relief which might be granted by a court of
general jurisdiction, including, without limitation, award of
damages and/or injunctive relief, and may, in the discretion of
the arbitrators, assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrators
and reasonable attorneys' fees, against either or both parties,
in such proportions as the arbitrators shall determine. Nothing
herein contained shall bar the right of any of the parties to
seek and obtain temporary injunctive relief from a court of
competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage pending
completion of the arbitration.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date set forth in the preamble to this Agreement but actually on the dates set
forth below.
UNIFIED FOODSERVICE PURCHASING
COOP, LLC
By_______________________________________
Title:___________________________________
Date:____________________________________
_________________________________________
By_______________________________________
Title:___________________________________
Date:____________________________________
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APPENDIX E
SELECTED KFC COOP BYLAW AMENDMENTS
ARTICLE II
Stockholder Members
2.1 Stockholder Eligibility. The following persons, firms or
entities shall be eligible to be stockholders in the Cooperative:
(a) Each sole proprietor, partnership, corporation or
other entity who is or becomes a direct or indirect Kentucky Fried Chicken
franchisee or licensee of KFC Corporation, a Delaware corporation, or its
successors, assigns, affiliates, or related companies.
(b) Each of KFC National Management Company, a Delaware
Corporation ("KFC Management"), and KFCC/PepsiCo Holdings, Inc. ("KFC Canada"),
and their respective successors as operators of KFC outlets.
(c) The KFC National Council and Advertising Cooperative,
Inc., a Delaware non-stock corporation ("NCAC").
(d) Each sole proprietor, partnership, corporation or
other entity who is or becomes a direct or indirect Kentucky Fried Chicken
franchisee or licensee of Kentucky Fried Chicken International Holdings, Inc., a
Delaware corporation, or its successors, assigns, affiliates, or related
companies.
(e) Each sole proprietor, partnership, corporation or
other entity who as of [date], is a direct or indirect Taco Bell franchisee or
licensee of Taco Bell Corp., a California corporation, or its successors,
assigns, affiliates, or related companies.
Only persons, firms or entities which own of record a share of the
Cooperative's Membership Common Stock shall be eligible to purchase shares of
the Cooperative's Store Common Stock. As used in these Bylaws, the term
"franchise" includes licenses where appropriate in the context.
2.2 Stockholder Membership Requirements. Each person, firm or
entity which is eligible to be a stockholder member in the Cooperative shall be
a stockholder member in the Cooperative when and if that person, firm or entity
(a) purchases one share of the Cooperative's Membership Common Stock and (b)
purchases that number of shares of the Cooperative's Store Common Stock which
equals (i) the total number of Kentucky Fried Chicken retail outlets located in
all states of the United States and the District of Columbia (collectively, the
"United States") owned and operated by such person, firm or entity, (ii) the
total number of Kentucky Fried Chicken retail outlets located in any one country
other than the United States and Canada in any one international territory (a
"Foreign Territory") owned and operated by such person, firm or entity, (iii)
the total number of Kentucky Fried Chicken retail outlets located in all
provinces of Canada owned and operated by such person, firm or entity, or (iv)
the total number of Taco Bell retail outlets wherever located owned and operated
by such person, firm or entity. For purposes
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of this Section 2.2, (a) the term "total number...of retail outlets" means the
total number of traditional retail outlets, plus one-half rounded up to the
nearest even number of the total number of non-traditional outlets, and (b) the
term "non-traditional retail outlet" means an outlet with more than one of the
following characteristics: (i) a ten-year or shorter license, (ii) a limited
menu, (iii) sales from a kiosk or other transportable unit, (iv) sales from a
segregated food service area at a location in a facility (such as an airport,
athletic stadium, university or school) established for a primary purpose other
than selling food for reasonably immediate consumption, (v) anticipated sales
volume less than anticipated sales volume for a traditional unit, (vi) sales in
conjunction with sales of another food concept, or (vii) such other
characteristics as the Board of Directors may determine are indicative of a
non-traditional retail outlet. If a stockholder member at any time becomes an
owner and operator of additional Kentucky Fried Chicken retail outlets within
the United States, Canada or within a Foreign Territory, or of additional Taco
Bell retail outlets wherever located, as the case may be, he shall purchase one
additional share of Store Common Stock for each such additional traditional
retail outlet or for each additional two non-traditional retail outlets as the
case may be.
2.3 Multiple Franchises. No person, firm or entity shall be
entitled to own, directly or indirectly, beneficially or of record, an interest
in more than one (1) share of the Cooperative's Membership Common Stock (the
"Base Share") regardless of the number of Kentucky Fried Chicken or Taco Bell
retail outlets owned and operated by such person, firm or entity, excluding (a)
any interest which any franchisee may have in the share of the Cooperative's
Series L Membership Common Stock held by the NCAC, (b) any interest which any
franchisee may have in either (i) one (but only one) share of the Cooperative's
Series A through I Membership Common Stock if a franchisee's Base Share is a
share of the Cooperative's Series N Membership Common Stock or (ii) one (but
only one) share of the Cooperative's Series N Membership Common Stock if a
franchisee's Base Share is a share of the Cooperative's Series A through I
Membership Common Stock, (c) if a franchisee's Base Share is not a share of the
Cooperative's Series J Membership Common Stock, any interest which any
franchisee may have in one (but only one) share of the Cooperative's Series J
Membership Common Stock, (d) if a franchisee's Base Share is not a share of the
Cooperative's Series M Membership Common Stock, any interest which any
franchisee may have in one (but only one) share of the Cooperative's Series M
Membership Common Stock, (e) any interest which KFC Management may have in KFC
Canada's Series M share, and any interest which KFC Canada may have in KFC
Management's Series K share by reason of KFC Management and KFC Canada each
being subsidiaries or divisions of PepsiCo Inc., and (f) any interest which any
franchisee may have in a share of the Cooperative's Membership Common Stock (i)
held by a person, firm or entity in which the franchisee owns 50% or less in the
aggregate of the outstanding ownership interests, and (ii) with respect to which
the franchisee refrains from voting or participating in the voting of the share
of Membership Common Stock. Where more than one (1) person, firm or entity are
designated as franchisees of one (1) or more retail outlets, such persons, firms
or entities shall be considered as a single person, firm or entity for
stockholder purposes. The person, firm or entity who owns more than 50% in the
aggregate of the outstanding ownership interest of the person, firm or entities
owning and operating a Kentucky Fried Chicken or Taco Bell retail outlet shall
be, unless such person designates otherwise, the person, firm or entity entitled
to own the share of Membership Common Stock representing such franchise
operation. Where no person, firm or entity owns more than 50% in the aggregate
of the outstanding ownership interests of the person,
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firm or entity owning and operating a Kentucky Fried Chicken or Taco Bell retail
outlet and none of such persons, firms or entities own, directly or indirectly,
an interest in a share of Membership Common Stock of the Cooperative, such
persons, firms or entities shall be entitled to designate the person, firm or
entity from among themselves who shall be entitled to own the share of
Membership Common Stock.
2.4 Divisions of Membership Common Stock into Series. (a) Each
Kentucky Fried Chicken stockholder member other than KFC National Management
Company, Harman Management Corporation ("Harman"), Scott's Restaurants Inc.
("Scotts"), and NCAC shall be entitled to purchase one share of Membership
Common Stock of one of the following series set forth in Column 1 below, but
only if such stockholder member owns or operates, or pursuant to Section 2.3
hereof, is deemed to own or operate, a Kentucky Fried Chicken retail outlet in
one or more of the areas set forth in the corresponding line(s) of Column 2
below:
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
-------- --------
SERIES AREA
------ ----
<S> <C>
A Indiana, Michigan, Ohio and West Virginia.
B Arkansas, Colorado, Kansas, Missouri, New Mexico, Oklahoma
and Texas.
C Connecticut, Delaware, District of Columbia, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont.
D Alaska, Hawaii, Idaho, Montana, Oregon, Washington and
Wyoming.
E Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, Tennessee and Virginia.
F Illinois, Iowa, Minnesota, Nebraska, North Dakota, South Dakota
and Wisconsin.
G Arizona, California, Nevada and Utah.
J Foreign Territories other than Canada.
M Canada.
</TABLE>
The Series of Membership Common Stock to be issued shall be designated
by the stockholder member, or in the absence of such designation, by the
Cooperative.
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(b) Each Taco Bell stockholder member shall be entitled
to purchase one share of Series N Membership Common Stock (a "Taco Bell
Membership Share"), but only if such stockholder member owns or operates, or
pursuant to Section 2.3 hereof, is deemed to own or operate, a Taco Bell retail
outlet in the United States.
(c) Harman, Scotts, KFC National Management Company, and
the NCAC shall be entitled to purchase one (1) share of one of the Series of
Membership Common Stock set forth below opposite its name:
<TABLE>
<CAPTION>
STOCKHOLDER MEMBER SERIES
------------------ ------
<S> <C>
Harman H
Scotts I
KFC National Management Company K
NCAC L
</TABLE>
(d) If Harman shall at any time own or operate less than
100 Kentucky Fried Chicken outlets in the United States, or if Scotts shall at
any time own or operate less than 100 Kentucky Fried Chicken outlets in Canada
or if KFC National Management Company shall own or operate less than 200
Kentucky Fried Chicken outlets in the United States, then the share of the
Membership Common Stock owned by Harman, Scotts, or KFC National Management
Company, as the case may be, shall be exchanged for one share of Membership
Common Stock of such other Series as such person is eligible to purchase as
provided in Section 2.4 hereof. The Series of Membership Common Stock to be
issued in such exchange shall be designated by such person, or in the absence of
such designation, by the Cooperative.
(e) No person, firm or entity shall be entitled to
purchase or own any of the Series O through Series Z shares of Membership Common
Stock.
2.5 Mandatory Redemptions; Restrictions on Transfers.
(a) Unless otherwise prohibited by law, the Cooperative
shall promptly redeem shares of Membership Common Stock held by persons, firms
or entities who no longer qualify as members. The redemption price for each
share of Membership Stock shall be Ten Dollars ($10.00), which shall be payable
in cash, except that, if the Cooperative shall be prohibited by law from
redeeming such share in cash because such payment would impair the capital of
the Cooperative or otherwise, the Cooperative shall in lieu thereof issue to the
holder of such share a non-interest bearing promissory note payable whenever the
Cooperative shall no longer be prohibited by law from making such payment.
(b) In the event the holder of any one or more shares of
Store Common Stock receives a bona fide offer ("Bona Fide Offer") to purchase
such share(s) of Store Common Stock and such holder shall desire to sell,
assign, transfer or otherwise convey such share(s) in
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accordance with the terms of such Bona Fide Offer, such holder shall first offer
in writing to sell such share(s) to the Cooperative upon the terms set forth in
the Bona Fide Offer. The Cooperative shall have ninety (90) days from its
receipt of such offer in which it may either accept or reject such offer. The
Cooperative may accept such offer by tendering to the holder of such share(s)
the purchase price therefor, subject to the tender by such holder of the
certificates to be purchased by the Cooperative duly endorsed for transfer to
the Cooperative. If the Cooperative fails to respond to such offer within said
ninety (90) day period, such offer shall be deemed to have been rejected. Within
sixty (60) days after such offer is rejected or deemed rejected, the holder of
such share(s) may sell, assign, or otherwise transfer such share(s) to the
person named in the Bona Fide Offer upon terms no less favorable than those set
forth therein; provided that no such transfer shall be made to any person, firm
or entity which does not at the time of such transfer qualify as a stockholder
member. If such share(s) are not sold, assigned, transferred or otherwise
conveyed within said sixty (60) day period, then they may not be sold, assigned
or transferred without the holder thereof again offering such share(s) to the
Cooperative in accordance with the provisions of this Section 2.5. Each
purchaser, assignee or transferee of Store Common Stock shall be bound by the
terms of these Bylaws. The Cooperative may from time to time purchase shares of
its Store Common Stock at the request of holders who do not or no longer own or
operate KFC or Taco Bell retail outlets with respect to the offered share, all
in accordance with such specific policies and guidelines and upon such specific
terms and conditions as the Board of Directors may from time to time adopt and
from time to time deem advisable.
ARTICLE IX
Patronage Dividends
9.1 Patronage. The term "patronage" shall refer to the value of the
Cooperative's business with its stockholder members. Business with the
Cooperative's stockholder members shall include the following: (1) the
Cooperative's direct business with its stockholder members; (2) the
Cooperative's business with its stockholder members through distributors
("participating distributors") which shall have agreed to participate in the
Cooperative's patronage dividend program for its stockholder members by entering
into distributor participation agreements with the Cooperative or the Unified
Cooperative in such form as the President shall prescribe or approve from time
to time; (3) the Cooperative's business with its stockholder members through
suppliers ("participating suppliers") which shall have agreed to participate in
the Cooperative's patronage dividend program by entering into supplier
participation agreements with the Cooperative or the Unified Cooperative in such
form as the President shall prescribe or approve from time to time; and (4) the
Cooperative's business with its stockholder members pursuant to arrangements set
forth in a management agreement approved by the Board of Directors with the
Unified Cooperative, whereby the stockholder members purchase goods directly
from the Unified Cooperative or through participating distributors and
participating suppliers. The term "patronage" includes the Cooperative's
business with its stockholder members both when the Cooperative or the Unified
Cooperative purchases (takes "Title") and resells goods to the Cooperative's
stockholder members and participating
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distributors, and when participating suppliers sell goods directly to
stockholder members and participating distributors.
9.2 Cooperative Basis. The Cooperative shall at all times
be operated on a cooperative basis for the benefit of its stockholder members.
The Cooperative shall always do more than fifty percent (50%) in value of its
business with its stockholder members.
9.3 Patronage Dividend Distributions.
(a) The Board of Directors shall, after considering the
Cooperative's anticipated expenses and need for capital and reserves, (i)
obligate the Cooperative to distribute patronage dividends as provided in
section 1388(a)(2) of the Internal Revenue Code of 1986, as amended (hereinafter
referred to as the "IRC"), and (ii) distribute as patronage dividends, directly
to the stockholder members of the Cooperative, the net income of the Cooperative
from patronage done with or for stockholder members computed in accordance with
sections 1381-1388 of the IRC and in accordance with the principles applied in
preparation of the Cooperative's federal income tax return. Specifically, the
Cooperative shall distribute patronage dividends to stockholder members annually
on the basis of each stockholder member's patronage. In determining the portion
of the Cooperative's patronage dividend obligations to be paid in cash, the
Board of Directors shall consider: (1) Expenses directly or indirectly related
to the Cooperative's business; (2) Such reasonable reserves for necessary
corporate purposes as may from time to time be provided by the Board of
Directors for depreciation and obsolescence, state and federal taxes, bad debts,
casualty losses, insurance and other corporate and operating charges and
expenses, all established and computed in accordance with generally accepted
accounting principles; (3) Such reasonable reserves for working capital
necessary for the operation of the Cooperative and for deficits arising from
such operation, (including deficits from business other than business done with
or for stockholder members).
The amounts set aside for reserves in any year from gross margins of
the Cooperative from business other than with or for the stockholder members
shall be allocated to the extent possible, to stockholder members, on the books
of the Cooperative on a patronage basis for that year, or, in lieu thereof, the
books or records of the Cooperative shall afford a means of doing so, so that in
the event of a distribution of amounts formerly carried in reserves, each
stockholder member may receive to the extent possible, that stockholder member's
pro rata share thereof.
(b) Solely for the purpose of determining the amount of
patronage dividends distributable to a particular stockholder member of the
Cooperative, the Board of directors may, by resolution, segregate the
Cooperative's business with its stockholder members into two distinct pools: (i)
the "Title Pool," under which shall be determined the net earnings of the
Cooperative from business with the Cooperative's stockholder members in which
the Cooperative takes Title to goods; and (ii) the "Non-Title Pool," under which
shall be determined the net earnings of the Cooperative from business with the
Cooperative's stockholder members in which the Cooperative does not take Title
to goods.
The amount distributable by the Cooperative as patronage
dividends directly to each stockholder member of the Cooperative shall be based
on
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(A) the ratio of
(i) the value of business done by the
Cooperative with each stockholder member in which the Cooperative takes Title to
goods, to
(ii) the net earnings of the Cooperative in the
Title Pool attributable to business done with or for its stockholder members,
plus
(B) the ratio of
(i) the value of business done by the
Cooperative with each stockholder member in which the Cooperative does not take
Title to goods, to
(ii) the net earnings of the Cooperative in the
Non-Title Pool attributable to business done with or for its stockholder
members.
(c) The patronage dividend distributions shall be paid to each
stockholder member on the basis of the quantity or value of business done with
or for each stockholder member, and the patronage dividend distributions shall
be determined by reference to the net earnings of the Cooperative from business
done with or for its stockholder members. The patronage dividend distributions
shall be among all stockholder members, shall be directly proportional for each
taxable year of the Cooperative to the purchases by each stockholder member, and
so shall be based upon each stockholder member's patronage.
9.4 Timing of Payment of Patronage Dividends. Each distribution of
patronage dividends shall be made within the payment period beginning with the
first day of a taxable year for which the Cooperative claims a deduction for
patronage dividends paid in the form of such distributions and ending with the
15th day of the 9th month following the close of such taxable year.
9.5 Method and Character of Payment. The Board of Directors may,
in its discretion, determine to pay patronage dividends either all in a form
that will be treated as a deductible qualified written notice of allocation
within the meaning of section 1388(c) of the IRC, all in a form that will be
treated as a nonqualified written notice of allocation within the meaning of
section 1388(d) of the IRC, or part in qualified form and part in nonqualified
form. At least twenty percent (20%) of any qualified payment of patronage
dividends shall be paid in cash or by a "qualified check" as defined in Section
1388(c)(4) of the IRC. Subject to this limitation with respect to qualified
distributions, the Board of Directors may decide that the balance of any
patronage dividend be paid, in whole or in part, in cash, property, promissory
notes or other evidence of indebtedness, or in any other form of written notice
of allocation (within the meaning of section 1388(b) of the IRC).
9.6 Consent to Stockholder Members. Membership in the Cooperative
by stockholder members shall constitute a consent of each such member to include
in its gross income the amount of any patronage dividend which is paid with
respect to direct sales from the Cooperative, and indirect sales through
participating distributors in money, "qualified checks,"
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"qualified written notices of allocation" or other property (except
"nonqualified written notices of allocation" as defined in Section 1388(d) of
the Internal Revenue Code of 1986, as amended) and which is received by it
during the taxable year from the Cooperative. Each stockholder member of the
Cooperative, through initiating or retaining its membership after adoption of
this Article IX of these Bylaws, as amended from time to time, consents to be
bound hereby. The provisions of this Article IX, as amended from time to time,
shall be a contract between the Cooperative and each stockholder member as fully
as though each stockholder member had signed a specific separate instrument in
which the stockholder member agreed to be bound by all of the terms and
provisions of this Article IX, as amended from time to time.
This consent, however, shall not extend to written notices of
allocation received by the stockholder member as part of a nonqualified payment
of patronage which clearly indicate on their face that they are nonqualified. By
way of illustration, the term "written notice of allocation" shall include such
items as the promissory notes, a notice or statement that such securities have
been deposited with a bank or other qualified agent on behalf of the stockholder
member, a notice of credit
to the account of the stockholder member on the books of the Cooperative
(against stock subscription or any other indebtedness as the Cooperative may
elect) and such other forms of notice as the Board of Directors may determine,
distributed by the Cooperative in payment, or part payment of the patronage
dividends. The stated dollar amount of the promissory notes is the principal
amount thereof.
9.7 Promissory Notes. Subject only to the payment of at least
twenty percent (20%) of each stockholder member's annual patronage dividend in
cash, the Cooperative may pay each stockholder member all or any portion of the
annual patronage dividend in promissory notes which shall bear interest at the
rate from time to time fixed by the Board of Directors and shall mature at the
time fixed by the Board of Directors not later than five (5) years from the date
of issuance, and may be subordinated to any liabilities or obligations of the
Cooperative, existing, contingent or created after the date of issuance. The
Cooperative shall have a lien upon and a right of set off against any said
promissory notes issued to a stockholder member to secure payment of any
indebtedness due the Cooperative or any of its subsidiaries by the stockholder
member.
9.8 Application of Patronage Dividends to Amounts Due the
Cooperative. Notwithstanding any of the foregoing provisions of this Article IX,
the portion of any patronage dividends which would otherwise be payable in cash
under any provision of this Article IX to a stockholder member may be applied by
the Cooperative to the payment of any indebtedness, the repayment of which is in
default, owed to the Cooperative by any such stockholder member to the extent of
such indebtedness instead of being distributed in cash, provided, however, that
an amount equal to twenty percent (20%) (or, in the case of a stockholder member
located in a jurisdiction to which the special withholding requirements of
Sections 1441 or 1442 of the Internal Revenue Code of 1986, as amended, apply,
thirty percent (30%)) of the total annual patronage dividends distributable for
the applicable year to any such stockholder member shall nevertheless be paid in
cash within the period set forth in Section 9.4 if any such stockholder
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member so requests in a writing received by the Cooperative within thirty (30)
days of the first day of the Cooperative's fiscal year as established under
Section 6.3.
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APPENDIX F
KFC NATIONAL PURCHASING COOPERATIVE, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY
I, the undersigned Stockholder Member of KFC National Purchasing
Cooperative, Inc. (the "KFC Coop"), do hereby nominate, designate and appoint
David G. Neal, James B. Royster, or Thomas D. Henrion, with full power to act
alone, my true and lawful attorney, with full power of substitution, for me and
in my name, place and stead to vote all of the Membership Common Stock of the
KFC Coop standing in my name on its books and which I am entitled to vote at
the Special Meeting of its Stockholder Members to be held at 10:00 a.m. on
February 26, 1999, at the KFC Coop's offices at 950 Breckenridge Lane,
Louisville, Kentucky, and at any adjournment thereof, with all the powers the
undersigned would possess if personally present, as follows:
1. CORPORATE REORGANIZATION.
To approve the Corporate Reorganization of the KFC Coop, as described
in the Proxy Statement dated January 28, 1999, and to authorize such other
action of the KFC Coop Board of Directors and any of its officers as may be
necessary or appropriate to carry out the objects, intents, and purposes of the
Corporate Reorganization.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. OTHER BUSINESS.
In the discretion of the proxies, on any other matter related to the
Corporate Reorganization that may properly come before the meeting.
Information regarding the matters to be acted upon at the Special
Meeting is contained in the Proxy Statement, dated January 28, 1999,
accompanying this Proxy. This Proxy will be voted as specified. If no
instruction is indicated on a properly executed and dated proxy form, then the
above-named proxies, or any of their substitutes, will vote the shares
represented "FOR" Item 1 and IN ACCORDANCE WITH THEIR DISCRETION on any matters
or business that may properly come before the meeting. THIS PROXY IS SOLICITED
BY THE BOARD OF DIRECTORS.
Please sign your name exactly as it appears in the address on this
form of proxy. When shares are held by joint tenants, both should sign. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated _______________, 1999
- ---------------------------- --------------------------------
Signature of the Stockholder Printed Name of the Stockholder
- ---------------------------
Series of Membership Common
Stock held by Stockholder
The presence in person or by proxy of Stockholder Members representing
a majority of the Stockholder Members entitled to vote at the special meeting
shall constitute a quorum at the Special Meeting. Therefore, you are urged to
sign, date and return the proxy card.
A PROMPT RESPONSE WILL BE APPRECIATED.
<PAGE> 166
Independent Auditors' Report
The Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.:
We have audited the consolidated balance sheet of KFC National Purchasing
Cooperative, Inc. (d/b/a FoodService Purchasing Cooperative, Inc.) and
subsidiaries as of October 31, 1997, and the related consolidated statements of
income, members' equity, and cash flows for each of the years in the two-year
period ended October 31, 1997. These consolidated financial statements are the
responsibility of the Cooperative's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KFC National
Purchasing Cooperative, Inc. (d/b/a FoodService Purchasing Cooperative, Inc.)
and subsidiaries as of October 31, 1997, and the results of their operations
and their cash flows for each of the years in the two-year period ended
October 31, 1997, in conformity with generally accepted accounting principles.
/s/KPMG LLP
- -------------
KPMG LLP
Louisville, Kentucky
December 8, 1997
